Senior Regulatory Advisor | Board Experience | Government/ Regulatory Affairs | Regulatory Change | Governance/ Risk | Former Regulator | Digital Assets | Banking / Capital Markets | Asset Management | (Re) Insurance
The European Central Bank (ECB) has published a guide emphasizing the importance of good governance and risk culture for banks in the EU. This is crucial for maintaining the financial system's stability and public trust. Deficiencies in governance and risk culture can lead to poor decision-making and excessive risk-taking, potentially threatening a bank's capital and operational resilience. The ECB guide outlines key supervisory expectations when assessing governance and risk culture, highlighting four dimensions of risk culture: tone from the top and leadership, a culture of effective communication, challenge diversity, accountability for risks, and appropriate incentives. Firm Implications: Enhanced Governance Frameworks: Banks must establish robust governance arrangements, including clear organizational structures, well-defined responsibilities, effective risk management processes, and control mechanisms. Strong Risk Culture: Banks should foster a culture of prudent risk-taking through solid leadership, open communication, and a focus on accountability. They must ensure that employees understand and adhere to risk management principles. Risk-Aligned Incentives: Remuneration and incentive structures should be aligned with the bank's long-term interests and risk profile, discouraging excessive risk-taking. Regulatory Compliance: Banks must comply with EU regulations and guidelines on governance and risk culture, including those issued by the EBA and the ECB. Supervisory Scrutiny: The ECB will increasingly scrutinize banks' governance and risk culture practices. Banks should be prepared to demonstrate their adherence to the guidelines and address any identified weaknesses. Proportionality: While the guidelines apply to all banks, the specific governance arrangements and mechanisms should be proportionate to the nature, scale, and complexity of the bank's activities and risks. The ECB guide aims to promote a more sustainable banking sector by ensuring banks have strong internal governance and a sound risk culture. This will contribute to financial stability and public confidence in the banking system. #ECBBankingSupervision #GovernanceAndRiskCulture #BankingRegulation #RiskManagement #FinancialStability #EUGovernance #BankingIndustry #Compliance #CorporateGovernance
Head of Security at CARE • Senior Risk & Crisis Leader for Diverse, Global Portfolios
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