Organised by
Indian Institute of Banking & FinanceIndian Institute of Banking & Financein Collaboration with
Indian Banks’ Association (IBA)Indian Banks’ Association (IBA)
Technical Session IRisk Management and HR Issues
Gordian GaetaThe Asian Banker, Singapore
Hyderabad, 28 November 2005Hyderabad, 28 November 2005
7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005
Today’s Agenda
Introduction to The Asian Banker
Human Resources & Risk Management
The Future of Banking HR Requirements
A Call for Action
Introduction to The Asian Banker
7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005
The Asian Banker is in three businesses serving the financial services industry ...
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www.theasianbanker.com
… delivering business intelligence to the financial services community
Asian Banker PublicationsAsian Banker JournalAsian Banker InteractiveAsian Banker Reports
Asian Banker ForumsAsian Banker SummitRoundtables & Consultative ForumsIndustry Outlook BriefingsExecutive Programs
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Payments and Operations
Backofficeprocessing
Risk Management
Distribution StrategiesRetail Payment initiatives
Corporate Governance
The Asian Banker – Global in Scope, Regional in Coverage
Main Office: Singapore
Rep: LondonRep: San Francisco
New Focus: Middle East
Branch Office: Kuala Lumpur
Branch Office: Shanghai
New Focus: Korea New Focus:
Japan
Branch Office: Hong Kong
Rep: New York
Human Resources & Risk Management
7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005
• In recent years we have come to comprehensively understand the structure of risk – the negative variance on an expected outcome
• While we can understand risk, its predictability remains elusive as with all chaotic systems
• People shape the risk profile of businesses • At the same time humans are the main solution to risk
issues so we separate risk responsibilities and build risk systems …
• … but, often, we fail to instill in our people sense of
accountable responsibility and understanding of the risk reward relationship inherent in all undertakings
Human resources are at the core of risk
Risk – the negative variance on an expected outcome
$ Value of Losses/Outcomes
Frequency/Probability f
Expected Losses Unexpected Losses
Traditional outcomes
Traditional outcomes
SkewedOutcomes
SkewedOutcomes
RISKRISK
EventsEvents
Typical loss distribution
Largely, people cause negative outcomes
Source: CSFB, Global Operations, figures rounded &
Number of operations losses by causality factors
People60%
Process19%
Systems21%
• Inadequate control (8%)
• External error (3%)
• No control (2%)• Late receipt (1%)• Increased
volumes (1%)
• Inadequate control (8%)
• External error (3%)
• No control (2%)• Late receipt (1%)• Increased
volumes (1%)
• Failure/bug (8%)• Inadequate functionality (7%)• Feed late (1%)• Incorrect data (1%)
• Failure/bug (8%)• Inadequate functionality (7%)• Feed late (1%)• Incorrect data (1%)
• Lack of attention (40%)
• Poor communication (10%)
• Inadequate training (7%)
• Unclear roles (3%)
• Lack of attention (40%)
• Poor communication (10%)
• Inadequate training (7%)
• Unclear roles (3%)
Currently, the solution seems to separate risk responsibilities and build risk systems …
0
10
20
30
40
50
60
Chief RiskOfficer
ChiefExecutive
Officer
ChiefFinancial
Officer
ChiefInvestment
Officer
Source: Risk Management Survey 2005, The Asian Banker
Primary responsibility for Risk
In %
0% 5% 10% 15% 20% 25%
Technology
Risk
Brand equity
Channel
M&A
HUMAN RESOURCES
Marketing
Differentiation
Customer acquisition
Cost management
CRM
Bank spending emphases
This
Will
Be a spl
Dept??
… rather than instilling an ‘accountability’ spirit in staff at all levels
• Most staff live in world of insured risks, they act as administrators and if they follow the rules, they remain generally gainfully employed and unaffected by the outcomes
• Too often there is widespread lack, in staff, of risk recognition, a sense of lack of responsibility for failure and by consequence, a will to find new or better ways of discharging their obligations
• Adding layers of specialist management, segregation of roles and systems support may address the ‘tail end’ of the risk distribution but compounds the ‘moral hazard’ problem for staff in daily undertakings
• Current human resource development does not foster individual accountability
• Business specialisation and compartmentalisation of functions, delegation of activities and roles combined with third party involvement is growing
• Fragmentation reduces overall perspective and pushes authority further down the line. Individual ambition and self-actualisation is driving this further??
• Competition, constant change and performance pressures increase the tendency for expediency without regard to risk implications
• With a growing pace of change, we place great reliance on rules, handbooks and manuals but without specific behavioral principles to keep risks in check or to manage behavioral standards
When empowering staff, risk profiles change because behavioral standards deteriorate
Behavioral standards are the complement to competence in true professionalism
Competence
Integrity
ProfessionalismProfessionalism
EthicalStandards
Commercial &Other Laws
Codes of Conduct
Universal, broad-based, compelling
Community, narrow-based,
voluntarySourceSource
Morals &Culture
Codified, contestable, democratic
Fuzzy, elective, organic
SpecificitySpecificity
At business level, there is unanimity on a need for behavioral standards
Business EthicsA system of (behavioral) principles (specific to the industry) that help determine right from wrong, good from bad in daily (business) life or when facing conflicts of interest (in discharging our professional responsibilities)
Essentially, business ethics give guidance in autonomous choices of individuals when facing conflicts of interest or in situations in which an individual has a personal interest sufficient to appear to influence the objective exercise of duty
Yet, violations are widespread and a real life threat …
• 48% of American workers admit to doing something wrong or illegal on the job, among others
• cutting corners (16%)• covering up incidents (14%)• lying to or deceiving customers (9%)
• 56% say they have considered it• Between 25-60% of employees surveyed admit to having seen
unethical behavior • Only 11% of financial services managers who witnessed unethical
behavior reported their concerns• Over US$50 billion losses, fines and damages due to staff misconduct
in high profile cases
The Future of Banking HR Requirements
7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005
• Retail banking will come to be the largest part of banking • Non traditional products and specialized segments will provide
the base for growth.• The shift from manufacturing to distribution will continue• Providing customer solutions will shift emphasis from offering
products to innovation ( focused) at the point of sale and advice• Non-strategic activities of banks will move to third party
suppliers• Largely internal factors will determine success or failure of the
bank mainly through ensuing risk profiles• People will be at the core of any strategy - they will influence the
level of governance and regulation thereby determining the opportunities available
Banking of the future may look quite different than today
Source: Mercer Oliver Wyman, various publications
• As many activities and functions will be outsourced, operational staff of today may have to migrate towards front line jobs
• Traditional staff trained only in selected products will become a liability to the distribution of advice and solutions
• Business skills, marketing and understanding customer needs will pose a different kind of challenge for existing staff
• Assessing and extracting higher customer value requires better analytical and servicing skills tailored to the real needs of the market rather than the product offering of a bank
• Risk appreciation and management skills will need to migrate to the customer interface
Human resources will have to grow with business requirements
A Call for Action
7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005
The dilemma: what we train & develop may not be all of what we need for the future …
Competence and Knowledge
Management Rules and
Regulations
Products
Competence and Knowledge
Management Rules and
Regulations
Products
Responsibility and Accountability
Values
Selling and solution skills
Responsibility and Accountability
Values
Selling and solution skills
What we train ….What we train …. What we need….What we need….
The world of tomorrow calls for a different staff and different development priorities
• Real accountability, regular non-supervisor appraisals and subsequent staff action
• Augmentation of management control through a staff development agenda
• Models and codes for behavioral standards with commensurate corporate culture and disciplines
• Reward systems that engender functional behavior and quality business
• Clear standards for selling practices and customer service• Widespread appreciation for business risks and regulations
to safeguard the bank
Growing competence alone will not win – a different mind set and conduct is necessary
Gordian GaetaThe Asian Banker, Singapore
Thank youThank you