Preliminary results from a joint CII, London School of Economics and University of Plymouth research project on how financial organisations approach risk culture, revealed that firms were becoming increasingly conservative and it could damage their profitability.
The research project was designed to deliver practical guidance for firms to improve the cultures and behaviours associated with risk-taking and control activities.
Interviews were carried out at nine financial institutions with risk management professionals and the study also included the findings from a survey of 2258 CII members.
A six-page preliminary report revealed that risk management was generally viewed as a “hygiene activity to deal with negative outcomes or to handle what was required by regulators”. It was also perceived as a compliance exercise and was not as a means of creating potentially profitable opportunities or something to help firms achieve their core objectives.
The authors warned that a dominant risk culture could have potentially dysfunctional effects on risk-taking and could lead to excessively risk-averse organisations.
Risk Management Drivers
| Area of responsibility | Risk management activities which are directed to avoid negative consequences | Risk management activities driven by business opportunities | Risk management activities implemented in response to regulatory requirements |
| Senior Managemet | 5.5 | 5.1 | 5.6 |
| Sales | 5.1 | 5.2 | 5.5 |
| Underwriting | 5.1 | 5.0 | 5.4 |
| Compliance | 5.2 | 4.8 | 5.8 |
| Risk Management | 5.5 | 4.6 | 5.3 |
| All respondents | 5.2 | 4.9 | 5.4 |
Source: Online CII membership survey. Mean scores: 1 = strongly disagree; 7 = strongly agree
Adviser View
Nick McBreen, financial planner for Cornwall-based Worldwide Financial Planning, said: “Risk is now becoming the main show in town. I think many advisory firms are becoming more risk averse and this will translate to more cautious activity, especially when it comes to new business. This is directly driven by regulatory constraints and professional indemnity pressure.”
