Culture audits are becoming a bigger priority in the financial services industry, and banks in particular are looking at how to make the most of them.
The clear message from ACCA’s report, Risk cultures in banking: where next? is that there needs to be more dialogue between banks and their regulators if we are to avoid another crisis like the collapse of Credit Suisse or the sudden crash of Silicon Valley Bank in 2023. The culture cracks that these failures exposed continue to spark questions of what good and bad risk practices look like.
There is a growing understanding that the numbers on a financial statement represent a multitude of behaviours and decisions driven by an organisation’s culture – and risk culture within that. ACCA members working at banks big and small say there needs to be more focus on the behaviours behind the risks.
‘It is important to reach out and have those challenging conversations with team leaders’
‘We have had more success with incorporating behavioural economics, and when I engage business units in risk-assessment exercises, I don’t mention risk anymore,’ says an ACCA member quoted in the report. ‘Risk is counterintuitive because the responses range from blank looks, to “It’s fine”, to panic, or to a tendency to equate risk with an assumed outcome.’
Behaviour impact
The issue is not so much about what policies require of people, but about finding out what drives people’s behaviour in the environment they are in.
The report’s 10 action points recommend zooming in on how certain behaviours lead to specific outcomes, and establishing which habits need to be broken and what incentives need to be embedded.It is also important to link the information from such assessments to the different levels of risk maturity in the bank. Risk maturity is a measure of how well an organisation identifies, assesses, manages and monitors risk. You can read more about this on page 36 of the ‘mother’ risk culture report from last year.
One of the strongest influences of employees’ behaviour, the report finds, is the immediate line manager. ‘I am the one in our capital markets group in charge of monitoring risk,’ says a member from a bank in Canada. ‘Not only is that about interest rate moves, but our processes and our people, and the many interdependencies that can lead to material loss.’
ACCA members who informed the report are trying to get the buy-in needed to do something more concrete and enterprise-wide with conduct and culture metrics.
‘We must always look for data when trying to understand or pin a risk to a behaviour’
‘As accounting professionals,’ says one member, ‘our antennas should immediately pop up when we see a behavioural issue and what it might give rise to. But we must always look for data when trying to understand or pin a risk to a behaviour, and always ask what kind of blind spot this data appears to indicate.
‘It is important to review the data in detail, then reach out and have those challenging conversations with team leaders.’
Culture based on trust
Trusted information is crucial for building resilience and positive risk-taking in a world where threats are only intensifying, especially with cyberattacks and fraud.
By telling the stories, accountancy professionals can raise risk awareness and influence performance
As discussed throughout ACCA’s risk culture series, accountancy professionals can serve as ‘super-networkers’ by spearheading teams to make better informed judgments and sharing knowledge within and outside the organisation. By telling the stories – and explaining the financial impact of poor decision-making and disconnected cultures – accountancy professionals in all their different positions can raise risk awareness and influence the performance of their organisation and its impacts on stakeholders.
In the survey from the series’ ‘mother report’, Risk culture: building resilience and seizing opportunities, around a third of respondents said that their organisation had conducted a culture audit in the previous financial year; another third said that they were considering or planning to do one.
Those respondents who said that they had completed a culture audit were also the ones saying that they were confident that their internal controls could detect operational risks and that their accountancy teams were able to quantify non-financial risks.
The accountability sink
Supervisory bodies around the world are now saying that ‘character eats strategy for lunch’ – a spin on the famous quote from legendary consultant and writer Peter Druker: ‘Culture eats strategy for breakfast’. His widely recognised point is that a powerful and empowering culture is the secret sauce to organisational success.
This is fuelling pressure on banks to ensure accountability is end-to-end so that threats and incidents are appropriately managed across business units. It is crucial to reduce siloed or protectionist behaviours that compromise teaming – the activity of working together as a team – and ultimately damage the value of the franchise group.
People will only change their behaviour if they see rewards and outcomes they identify with
More ACCA members are talking about the effectiveness of designing responsible remuneration policies, agreeing that people will only change their behaviour if they see rewards and outcomes they identify with. It is therefore important to connect personal ambitions with the desired behaviours and stated values of an organisation, not least when it comes to expectations around sustainability and digital transformation.
Accountancy professionals need to think about the human beings they are trying to influence because speaking up is a behaviour that organisations can encourage. A ‘hands-up’ culture is needed, which can be engendered by management leading by example. Leaders who can get people to follow them not only drive a working environment in line with the organisation’s values and stakeholders’ needs but also one that supports innovative thinking and job satisfaction.
More information
Listen to the podcast series on risk culture, which explores many of the themes in this article and the wider reports
