The financial crisis has highlighted what the European Commission has described as the ‘absence of a healthy risk management culture at all levels of certain financial institutions’. Even where sophisticated risk and capital models were in place, the nature, implications and, not least, limitations of the evaluations were often misunderstood or simply ignored in the pursuit of topline revenue.
Inappropriate incentives or lack of oversight may have played a part in fostering excessive risk taking. However, the underlying reason was that many people at the sharp end of the business saw risk management as little more than a regulatory chore, with limited relevance or benefit to their day-to-day priorities.
In assessing whether your organisation has a strong and effective risk culture, it would be useful to ask the following questions and more: