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Financial Sector Behind the Curve on Risk Management

A majority of financial institutions attribute risk incidents to corporate cul

Risk management in the financial industry is a couple of decades behind other industries, according to a Financial Times analysis of recent banking industry scandals and financial corporate culture.

Citing the results of a survey from advisory firm Corven, the Times reported that 62 percent of senior risk officers from major banks and financial institutions in the United Kingdom attribute major risk incidents to corporate culture or leadership. Additionally, nearly all of the companies represented in the survey - 93 percent - have no way of measuring culture or behavior, and most financial institutions are addressing issues merely by changing processes rather than tackling the culturally ingrained habits creating systemic risk.

Financial institutions around the world have taken a number of hits to their reputations in the last few years, but nowhere more so than Britain. Several of that country's largest firms are embroiled in a scandal over the Libor rate, and HSBC was recently accused by the U.S. Senate of helping launder money for Mexican drug lords and international terrorists. According to Reuters, banks often address the symptoms of these incidents, rather than the root cause.

“What banks are doing is a natural response, but it’s an immature one and does nothing to address cultural challenges,” said Crispin Ellison, a director at Corven, who was quoted for the article. “If you look at the aviation industry, there is a legal duty for a subordinate to challenge decisions made by his superior. That’s such a long way from where we are with the banks, where a subordinate fears he will lose his job if he challenges his boss.”

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