In the Actuaries Institute’s Social Risks – for a financial services business dialogue paper, author Ian Laughlin slammed the financial services industry for failing to adapt to changing social norms and attitudes.
Mr Laughlin questioned the industry’s inability to manage risks to prevent misconduct, which have culminated in widespread scrutiny from government, media and the general public.
“How can it be that institutions spend huge amounts of money, resources and intellect on managing risk, and still find themselves being castigated by the press, politicians and social media for unacceptable attitudes and behaviour?” the author said.
“The government has freely criticised the banks, subjected them to intense parliamentary scrutiny and has announced its intention to impose new law on accountability and remuneration.
“[Now] after much political battle, there is to be a Royal Commission into misconduct in the banking, superannuation and financial services industry.”
Mr Laughlin acknowledged that financial institutions are presently held to a higher standard than in the past, but he argued that the industry has been slow to address social risks and adapt to “new social capabilities” that intensify scrutiny.
“[Institutions] have not managed the risks that come from changing social attitudes and norms and the power of new social capabilities. Such risks need a fresh approach,” Mr Laughlin said.
Further, Mr Laughlin noted that the factors that fuel social risks are ready access to information spurred on by the evolution of social media.
The author outlined the different types of social risks that he believes the industry should be aware of. These include:
- Cynicism risk – A business’ conscious acceptance of its own poor attitudes and behaviour
- True values risk – When the actual values of management and staff conflict with those espoused by the business
- Insight risk – When a business has a poor appreciation of current social norms and expectations
- Tolerance risk – A company’s failure to adapt to fast-changing social attitudes
Mr Laughlin urged the financial services industry to adopt a “risk-sensing” approach to have “deep and effective capabilities” in place to adequately monitor and assess social risks.
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Charbel Kadib is the news editor on the mortgages titles at Momentum Media.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.