‘Risk Culture’ central to AML efforts


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Analysis of risk culture in financial institutions can be a touchy topic. No one wants to be the wrench thrown into the machinery of a profit-making enterprise, but risk and compliance professionals by design have that responsibility. And a healthy ‘risk culture’ will help them do their jobs as designed.

Ira Steinbrecher of BaFin, Germany’s Federal Financial Supervisory Authority, addressed the challenge of effective risk culture in an article published this week on BaFin’s website. Steinbrecher noted that promoting the right risk culture is a central task of upper management, and that the stakes for prioritizing this responsibility are growing due to international agreement on punishing lapses and demanding accountability.

Steinbrecher cited a Swiss study from 2014 that researched risk cultures in banks. It found that some financial institutions have an internal culture that clearly “favors dishonest behavior by employees,” a sign of a deeply flawed approach to risk culture.

He notes that the Basel Committee on Banking Supervision emphasizes four principles needed to establish an effective risk culture: 1) Tone from the top, 2) Accountability, 3) Effective communication of challenges, and 4) Incentives to comply.

Steinbrecher goes on to detail how BaFin will ramp up its expectations of German financial institutions’ commitment to explicit internal cultures related to risk and to management practices that promote that explicit culture.

What remains to be seen is whether this push for more explicit risk cultures and management commitment spreads.


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