Greater use of civil and administrative sanctions will steer good corporate behaviour more effectively than prescribed risk culture as a regulatory tool divorced from business relevance, say Dr Michelle Tuveson and Professor Danny Ralph, Directors of the Cambridge Centre for Risk Studies. Their paper “Is Regulation of Risk Culture the Missing Piece? Civil Actions Reconsidered” has just been published in Banking & Financial Services Policy Report. In it, Dr Tuveson and Professor Ralph stipulate that fining individual firms and prosecuting individuals have not solved the underlying behavioural problems in financial services businesses which contribute to significant reputational damage and economic harm. Now, the idea of “risk culture” has come into focus as a means of improving professional standards, and regulators are increasingly trying to specify organisational risk culture guidelines.
They argue that without business relevance, statements about good or bad organisation culture or business ethics are divorced from the reality of individual behaviour. Incentives and disincentives linked to the business are what compel individual and corporate behaviour.
In this context, Dr Tuveson and Professor Ralph suggest that civil and administrative penalties have been comparatively neglected as a means of enforcing personal and corporate accountability. Such sanctions can include:
- Suspending or prohibiting individuals or firms from undertaking specific activities
- Financial penalties
- Statements of public censure
“Civil and administrative frameworks allow more nuanced and faster processing than the criminal courts and provide proportionate financial disincentives for individuals to engage in activities that lead to measureable harm. Such frameworks are important in establishing and maintaining healthy cultures in the financial services,” they conclude.
Risk culture will be the subject of this year’s Cambridge Centre for Risk Studies on 20 and 21 June 2016. More information will be published on the centre’s website at http://www.risk.jbs.cam.ac.uk/news/events/risksummits/risksummit2016.html
For information on Banking & Financial Services Policy Report, see: http://www.wklawbusiness.com/store/products/banking-financial-services-policy-report-journal-trends-regulation-supervision-prod-ss0730689x/paperback-item-1-ss0730689x
For an individual copy of the paper, please make your request to [email protected]