Risk management culture, ethics, and trust in financial services

From PwC's Financial Services Institute

Among the many risks that financial institutions face, one is often overlooked: the risk related to organizational culture. As high-profile incidents of unethical behavior rattle the financial services industry, risk management culture, ethics, and trust are in the limelight. In 2017, financial institutions will be asking: Can we build a strong risk culture that drives consistency across geographies and lines of business? Can we rebuild trust in the industry?

A look back

Culture, ethics, and trust in the headlines. Unlike recent years, when stories about collusion in high-stakes trading businesses dominated the discussion, we’ve now seen bad behavior in consumer-facing areas like call centers and branches focused on deposits and lending.

Industry making strides. Despite recent events, the industry as a whole has progressed. We see substantial progress since we published our 2014 Global Banking Risk Culture survey. We see more enterprise risk culture programs, more focus on the best interests of customers, more boards holding management accountable for changes in employee behavior, and new technology to track and measure progress.

Still room for improvement. While firms are doing better overall, they still struggle to drive consistency across geographies and lines of business. Many institutions haven’t yet managed to get the tone in the middle to align with the tone at the top.

It’s bigger than banking. Regulators are focused on prevention and punishment across financial services. The Department of Labor’s new fiduciary rule, for example, is designed to encourage ethical behavior by requiring asset managers and insurers to act in the best interest of each client.

Tone at the top in financial services - PwC

“Financial institutions need to be on their best behavior. Regulators are visiting. Congress is watching, and so are customers. It’s no easy task.”

Mike Alix Financial Services Advisory Risk Leader

The road ahead

No tolerance for unethical behavior across the industry. The change in the geopolitical landscape in 2017 won’t likely abate regulators’ and legislators’ concerns around risk culture. Customers and shareholders want to interact with institutions they trust, and reputational damage over the long term can be far more costly than punitive fines.

More emphasis from directors on fixing the problem. Where harmful unethical behavior is blatant, we’re likely to see high-profile management changes to signal that the board takes ethics seriously.

Stakes higher in a world with artificial intelligence. As the industry adopts artificial intelligence, programmers will need to code both prescriptive rules and principles-based algorithms. The financial institution will be on the hook if the automated advice doesn’t uphold a fiduciary duty.

What to consider

Build the right culture. Your firm’s culture should promote behavior that emphasizes following both the rules and their underlying principles. This should occur even at the expense of short-term revenue generation.

Not just management’s role. Your audit and risk committees should assess your organization’s culture. The tone at the top shapes an organization and drives behaviors.

Don’t forget about the “tone in the middle.” Many firms focus too much on the tone at the top and not enough on the tone in the middle. Real issues arise when managers don’t embed the firm’s culture in their daily activities. Your firm’s values and ethics need to be modeled in all interactions.

Examine risk culture throughout the talent lifecycle. The risk culture should be embedded from onboarding to promotion decisions to employees leaving the firm. As regulators continue to examine sales practices, for example, you should examine the potential unintended consequences of existing compensation and incentive plans.

What gets measured gets done. You should use risk culture surveys to measure changes in employee behavior. Using these tools across the firm allows leaders to measure, analyze, and adapt.

“Firms need to embed risk culture into every part of the talent lifecycle. Are we hiring the right people? How effective are background checks? How are target behaviors embedded through performance goals and rewards? How does increased employee engagement influence an effective risk culture?”

Bhushan Sethi Financial Services People & Organization Practice Lead

Learn more


Featured videos


Playback of this video is not currently available

PwC on using culture to achieve strategic goals in financial services

PwC's Bhushan Sethi discusses how culture can be used to achieve strategic goals in financial services. Once you understand what it is you're trying to change, you can use the elements of corporate culture to drive new behavior.


Playback of this video is not currently available

PwC on why ethics and trust will remain priorities in financial services

PwC's Deidre Schiela on the continuing emphasis on corporate ethics. Information travels quickly, and financial services CEOs know that reputational risk is a bigger issue than ever.

How PwC can help

Our teams in asset and wealth managementbanking and capital markets, and insurance are helping our clients tackle the biggest issues facing the financial services industry. With professionals across tax, assurance, and advisory practices, we can help you find ways to thrive even in a period of uncertainty. Whether you're preparing for regulatory changes, putting FinTech/InsurTech to work, or rethinking your human capital strategy, we work together with you to deliver value to your business.

For more information on how PwC can help with risk management, reach out to one of our leaders below.

Contact us

Michael Alix
Financial Services Advisory Risk Leader
Tel: +1 (646) 471 3724

Bhushan Sethi
Financial Services People & Organization Practice Lead
Tel: +1 (646) 471 2377

Marie Carr
Financial Services Institute
Tel: +1 (312) 298 6823

Cathryn Marsh
Financial Services Institute Leader
Tel: +1 (720) 931 7836

Deidre Schiela
Partner, Insurance Assurance
Tel: +1 (646) 471 7200

Follow us