ABA Banking Journal - May/June 2015 - (Page 30)
FEATURE
> EUGENE LUDWIG
Sound Risk Culture
and Risk Culture
Programs:
An Evolving
Necessity
BY EUGENE LUDWIG, FOUNDER, PROMONTORY FINANCIAL
GROUP, AND FORMER COMPTROLLER OF THE CURRENCY
A
SOUND risk culture is a vital component
of an overall risk framework, and it is
increasingly becoming a regulatory
necessity. As Federal Reserve Bank of New
York President William Dudley recently
told a supervisory conference, "Improving
culture in the financial services industry is
a necessity." Similar sentiments have been
voiced by virtually all other regulatory leaders.
A successful risk culture that satisfies regulatory
expectations requires strong formal risk management and
compliance programs. Attempts to shape a sound culture
without strong, formal risk and compliance programs will
miss the mark. Regulators are looking for a risk culture
that does not just foster good attitudes, but it produces
results that support risk management and compliance
efforts. Regulators have underlined this point both on and
off the record.
A strong risk management framework today must include:
* Astrongriskappetitestatement;
* Astrongboardgovernanceprocess,includingcredible
challenge;
* Astrongthree-lines-of-defensesystemconsistentwith
heightened regulatory standards;
30
ABA BANKING JOURNAL | MAY/JUNE 2015
* Astrongcomplianceprogram,includingBSA/AML
and sanctions, FATCA, and consumer issues
* High-integrityrisk-relateddataandsystems;and
* Forthelargestbanks,successfulCCAR,CLAR,and
resolution and recovery programs.
It is up to the board and senior management to
ensure that such a framework is in place. Without
it, it is hard to envision a successful risk culture that
produces the kind of outcomes that the regulatory
community would like to see. But a risk management
framework that is not aligned with a strong culture
will not work. If a financial entity's employees do not
display the ethics, behavioral norms, and attitudes
that align with its governance and risk management
policies, those policies will not be successfully
implemented.
The risk-culture norms and program discussed below
are meant to align with the emerging regulatory
standards in this area. These standards are becoming
less theoretical and more about behaviors and
outcomes. Tone will always be important in terms of
direction, as will institutional values. But increasingly
regulators are looking for a positive alignment of tone,
effort and-most important-concrete outcomes.
Table of Contents for the Digital Edition of ABA Banking Journal - May/June 2015
CHAIRMAN’S VIEW
UPFRONT
ECONOMIC OUTLOOK
LEGAL BRIEFS
PICTURE THIS
CELEBRATING A TRADITION OF INNOVATION
SOUND RISK CULTURE
AN INTERVIEW WITH FDIC’s MARTIN GRUENBERG
NEW RESPA/TILA MORTGAGE DISCLOSURES
BANK DOMAIN ROLLOUT
INVESTOR PERSPECTIVE
MARKETING/RETAIL
PAYMENTS
ADVOCACY
ABA COMPLIANCE CENTER INBOX
CYBERSECURITY
MORTGAGES
OPERATIONS
BOARD MATTERS
FROM THE STATES
BANKER RECOMMENDED READING
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS
ABA Banking Journal - May/June 2015
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