What did the Royal Commission have to say about Risk Management?

What did the Royal Commission have to say about Risk Management?

 

What did the Royal Commission have to say about Risk Management?

The key points identified by Commissioner Hayne for those in advisory and Risk Management roles were around the dissemination of information within financial institutions, the role of the Board and how systemic risks can develop within large financial institutions despite the good intentions of employees, senior managers and Board members*.

Commissioner Hayne drew special attention to the mismanagement and slow release of information between management, Boards and regulators within the Financial Services industry. This highlights the need for issues and breaches to be raised and handled effectively in a more timely and direct manner for both internal and external stakeholders.

SHAREHOLDERS V STAKEHOLDERS
Stakeholders are not to be confused with shareholders. The Royal Commission points out shortfalls when it comes to communicating with ALL stakeholders. Commissioner Hayne stressed the importance of better communication and engagement with a range of stakeholders including consumers, not just shareholders.  This is to increase trust and transparency and remove scope for unnecessary risk. It also addresses matters of ethics. Putting the customer first should ALWAYS be the number one priority.

A major bank Chairman has stated that the biggest change in the sector from the banking Royal Commission was a better understanding of “non-financial risk”, particularly the treatment of customers with complaints or facing hardship.**

 SO WHAT ABOUT THE MANAGE MENT OF NON FINANCIAL RISK? Anyone in Risk Management knows that it is more difficult it is to measure non – financial risk elements. Determining culture factors such as: misconduct, compliance risk, conduct risk, regulatory risk and operational risk takes on a whole new level of risk management, but one that it is more important than ever in the wake of the Royal Commission.

SO WHAT’S NEXT FOR RISK MANGEMEMENT POST ROYAL COMMISSION?

Collaboration is key moving forward.  Collaboration must come at all levels:

Company Culture – Board, Management, Staff

Customer/Consumer – Customers and their needs must be the number one priority

Regulators – APRA and ASIC must be more accountable and enforceable while working better together.

Failings of organisational culture, mismanagement of non- financial risk and governance ***are at the core of the findings of the Royal Commission. Risk Management professionals should work hard to address all these together to support improvements and minimize underpinning results. Rather than work independently in silos. Working collaboratively will ensure non-financial risk is better managed, resulting in less financial risk.

References:

*https://www.charteredaccountantsanz.com/news-and-analysis/news/how-the-royal-commission-impacts-advisory-and-risk-management-services

**https://www.smh.com.au/business/companies/westpac-chairman-says-bank-s-stronger-risk-focus-a-turning-point-20190508-p51lcd.html

***https://www.ey.com/au/en/industries/financial-services/ey-hayne-royal-commission

 

 

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