The financial services industry is beginning to undergo a paradigm shift in its attitude to risk reporting which is long overdue, says Dr Robert Webb, associate professor of banking at Nottingham University Business School.
Companies are starting to understand that customer confidence is boosted by openness and transparency around risk, with many now stressing the expert consideration of risk in their consumer-facing literature.For too long, the prevailing culture in the sector was to keep quiet about risk when in fact the reporting of risk should be celebrated, even rewarded, Dr Webb wrote in an article for FT Adviser.
Drawing parallels with the aviation industry, he said: “Few passengers would board a plane whose crew is so un-schooled in risk management that a flight attendant would hesitate to alert the captain to a sudden drop in cabin pressure. Why should investors entrust their wealth to organisations in which the same needless uncertainty might be rife?”People make mistakes. But the aviation industry’s response to calamity – recognising the mistake, learning the lesson, and solving the problem - is in marked contrast to other sectors where disaster was more likely to be met with denial, buck-passing and an unhealthy determination to ‘draw a line’ and move on.
The “people risk” highlights the importance of appropriate training, while good organisational structure helps ensure major errors of judgement do not remain undetected, overlooked or concealed. Catastrophes occur when risk is allowed to go unreported and unchecked.
“Those who work in financial services cannot be expected to act with unerring rationality in relation to risk events unless they are helped to understand the choices that might arise and the potential repercussions of their decisions,” said Dr Webb.
“With the industry at last starting to appreciate the role of individuals in creating and preventing risk, maybe now is the time to give real thought to how to ensure truly meaningful change.”