to good, effective communications. It’s an
ongoing challenge, and finding the right
balance is essential.
Question: How are you currently
working with your Executive
Committee / Board to help
establish and implement a
corporate risk culture? Are you
seeing a blurring of the line
between the boundaries of
General Management and Risk?
Who owns risk?
Lionel Lopez: My role is to manage and
control the independent risk function of
the Personal Bank and ensure that the risk
appetite framework is embedded and not
breached. I see myself as a partner to the
business, providing input to the business
strategy and also contributing to the business
growth while ensuring risks are understood
and under control. I think everybody in the
business owns risk; we are in a business
which is all about risk. Business should be
aware about their inherent risks and ensure
they have the operating controls in place
to mitigate those risks. The risk function is
here to set up the risk appetite, providing risk
management skills and tools to appropriately
manage risk, and also ensure the control
frameworks are working.
And third, to have a strong vision of risk
culture to maintain a strategic direction.
Lionel Lopez: There are three key strengths
a risk leader should have. First is creativity
and innovation; second is an orientation
towards data, facts, and process, with the
ability to make decisions based on those;
and third is strength in people management.
Raj Singh: The most important factor is
integrity – being an influential partner to
the business, but also being influential
enough to say no. Another key element
is that we have to be pre-emptive in the
risk function. To examine the ashes and
explain how the fire happened is not terribly
helpful, it’s looking at the sparks and trying
to think about how do we prevent that from
becoming ember.
“To examine the ashes and explain
how the fire happened is not terribly
helpful, it’s looking at the sparks
and trying to think about how do we
prevent that from becoming ember.”
Raj Singh
James Stewart: You really need to
understand the business. You can’t stay in
a world where things are too theoretical – at
the end of the day, you have to be a banker,
and understand what goes through the
minds of people out there on the front line
trying to win business and have it executed
in a speedy, prompt, service-oriented way.
Raj Singh: One element we are seeing
which is gaining importance is the overall
control framework beyond just risk, from
risk to operational risk, to the overall audit
functions, to the overall underwriting review
functions, and making sure that it is all linked.
Risk is ultimately owned by the risk taker and
the business, there is no question there. We
have to provide the transparency, give the
warning signs, look at the risk tolerance and
other elements, but the ownership has to be
with the business.
Stephen Anderson: One of the things I
am working on at the moment is looking at
the history of HSBC where risk decisions
were made which had an influence on the
future success and the future shape of the
organization, and using those as examples
to teach the new generation the importance
of our risk culture. The business of banking
is risk and without risk, there is no banking
and there is no banking without risk. I think
there are certain places within risk which are
clearly owned by the risk function, but risk as
a commodity is owned by everybody.
Question: As more regulation
continues on the horizon, what
suggestions do you have for
central bankers and policy
makers?
Hervé Geny: I think one of the things that led
to the crisis is that when new products came
on the market, regulators looked at them
in isolation rather than trying to put them
into the context of everything that exists
already. It’s important that they go from an
incremental view to redesigning the system
as a whole, and I think they are doing
this right now.
Raj Singh: We need to make sure we
respect the different business models
between banking and insurance.
Insurance definitely has been affected
by the crisis but the funding models and
liquidity scenarios are different. Also,
we need to be careful of unintended
consequences: whether it’s insurance,
reinsurance, or banking, ultimately additional
capital charges will have to come out of the
total financial system and the real economy.
Stephen Anderson: I don’t necessarily
believe that numerous layers of additional
regulation is the answer. I think that some
of the things that led to a complete collapse
in the emphasis on portfolio, quality, and
mortgage lending underwriting standards
and concentration issues all go back to
common sense, basic risk management
principles that we somehow lost sight of.
Question: What makes a good
CRO?
Stephen Anderson: Number one is a
commercial understanding. I don’t think it’s
possible to be a good Chief Risk Officer,
unless you understand what makes your
business tick and how your business makes
money...and I think also the Chief Risk
Officer has to be somebody who has a pretty
consistent view of what the risk appetite of
the company is and what portfolio of risks
the company should have and what the risk
tolerance of the company is.
Hervé Geny: First, openness and
transparency. Second, to be adaptable
and act almost as a translator, listening to
the business and translating what you are
looking for into measures and controls, and
also the reverse, to explain new controls and
methodologies to the business very clearly.
Conclusion
While the fundamentals of risk remain
constant, recent financial events have
placed a new premium on qualitative
insight. As risk professionals become
more involved in strategy, they must
combine a strong vision for risk with a real
understanding of their institutions’ business
models and processes. Ultimately, this
blend of quantitative acuity and human
insight is essential for creating and
maintaining an effective culture of risk
management.
As an executive search firm with a
dedicated and established practice within
the Risk and Finance functions across
the global banking and financial services
sector, SEBA International is continually
engaged with the issues shaping the risk
management field today. Robert Iommazzo
is a Managing Partner of SEBA International
and leads the Risk & Finance practice.
Robert can be reached at
riommazzo@sebasearch.com.
