Risk Culture: Definitions, Change Practices and Challenges for Chief Risk Officers

Simon Ashby, Tommaso Palermo and Mike Power

There can be no doubting the rise in interest in the risk culture of financial organisations since the financial crisis. Successive reports on the problems experienced at many organisations have identified defects in culture that permitted excessive and uncontrolled risk-taking.¹¹See Treasury Select Committee (2009a; 2009b); Group of 30 (2012); Parliamentary Committee on Banking Standards (2013a; 2013b). In the US, an investigation into the so-called London Whale trade concluded that:

In contrast to JP Morgan Chase’s reputation for best-in-class risk management, the Whale trade exposed a bank culture in which risk limit breaches were routinely disregarded.²²Permanent Subcommittee on Investigations, US Senate, March 2013.

Regulators in the UK are focusing increasingly on risk culture and, together with an industry of advisers, are searching for smart ways to define, operationalise, manage and supervise “good” risk culture.³³See Sants (2010a; 2010b); Adamson (2013); Ashby (2011). In short, the financial industry is undergoing something of a “cultural revolution”.⁴⁴DeJonghe et al. (2013).

However, we should remind ourselves that these preoccupations with culture are by no means new