Responsibility is everyone’s business

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Topics: AFSL Responsible Manager CPD

Risk Management, corporate governance and culture

As financial regulators step up their focus on corporate governance and culture, it has never been more important to have the right Responsible Managers in place.

On face value, the role of the Responsible Manager may appear to be an inwardly facing one, having very little to do with the end customer. Charged with the task of monitoring the financial services provided by their licensee to ensure they are being carried out in in a compliant manner, it is easy to assume that the Responsible Manager’s main task masters are the various regulatory bodies. In fact, Responsible Managers should really be called Reputation Managers, because they play a critical role in maintaining your company’s corporate character. And as financial regulators step up their focus on corporate governance and culture, it has never been more important to have the right RMs in place.

Today’s consumer has access to more information than ever before, and they are increasingly using this information to make purchasing decisions. Corporate reputation has become a key driver of company value (for both consumers and shareholders).

According to McCrindle, 60% of Australians rate ‘authenticity of brand’ as the most important factor in a buying experience (second only to ‘simplicity of purchase’). Similarly, 1 in 2 consumers say that their willingness to purchase from an organisation will be significantly impacted if the company behaves ethically in its interactions.

Unfortunately, the greater the opportunity to benefit from a good reputation, the greater the risk of harm from a bad reputation. Companies can no longer hide behind mission statements or corporate values – customers and shareholders want proof that your organisation operates responsibly and ethically. As we have seen with a number of recent, high-profile examples, when organisations fail to meet their corporate obligations, Australia’s regulators will not shy away from making an example of them, leading to significant reputational damage.

In a statement entitled ‘How to manage compliance risk and stay out of the headlines’ issued in February this year, APRA drew a clear correlation between ineffective risk management and reputational damage.

“Recent high-profile compliance failures show that failing to manage compliance risk can cause severe financial and reputational damage,” the statement read.

“Examples of failures that have attracted significant fines, along with reputational damage for businesses include: failure to correctly treat customers (including charging deceased persons, double charging for products, and not applying package discounts), failure to meet anti-money laundering obligations, and privacy breaches. In a number of instances, the organisations in question admitted to shortcomings in their processes, systems, and monitoring to avoid or provide early detection of breaches.”

So, how do you ensure your RMs are set up for success?

Teamwork makes the dream work

As ASIC’s guidance dictates, financial services business must appoint enough RMs so that their combined knowledge and skills cover all of the financial services and products delivered by the business.

It stands to reason, therefore, that the regulator does not expect RMs to carry out their duties in isolation. By combining their knowledge, skills and oversight, your RM team can effectively steer the business clear of emerging risks.

Consider whether your RMs have sufficient opportunities to meet and collaborate. Look at your organisation’s planning and reporting schedules and make sure there is time for the RM team to share their findings with one another and form a united position before decisions must be made.

Empower your RM team by highlighting the important role they play in driving the culture of your organisation. Make it clear to all your staff that a good compliance framework is integral to the long-term success of the business and critical for maintaining a good corporate reputation.

Benchmark your risk appetite

Risk management is about more than just avoiding mistakes. It’s about setting expectations for what is acceptable behaviour and what constitutes too much risk. In other words, organisations need to actively manage their risk appetite (typically approved at board level) and clearly communicate this so that the entire organisation understands what actions will not be tolerated.

It is in the communication and monitoring of this risk appetite that RMs become critical. As ASIC observed in its ‘Director and officer oversight of non-financial risk report’, while companies often had frameworks and structures in place to support board oversight of non-financial risk, in practice, deficiencies arose in compliance with these frameworks, with management operating outside the board approved risk appetite for “years at a time”.

This is why an essential component of the management of all risk is the identification, reduction and mitigation of risk through well-documented and well-communicated systems, policies and procedures.

Responsibility is everyone’s business

Good corporate governance is not a ‘set and forget’ exercise. It requires constant monitoring and, when issues emerge, they need to be addressed. In some cases, the resolution may be as simple as creating a new process to capture additional information or to close a gap. In others, disciplinary action may need to be taken against a member of staff. Regardless of the significance of the event, it is vital that your RMs are involved in determining the most appropriate response.

Consider how your reporting frameworks support your RMs to identify and respond to issues. As the guardians of corporate culture, your RMs need the confidence to make the tough choices, and the respect of the rest of the team when they do.

Similarly, empower your RMs to lead your organisation forward, by using failures as an opportunity to learn and grow. Mistakes should not be swept under the rug; rather, they should be made into examples for positive change. Not only does this help foster a culture of responsibility internally, it demonstrates to the external market that you care about doing the right thing. In today’s regulatory environment, skeletons are unlikely to remain in the closet for long. By proactively admitting to the error and sharing what you have learnt from the experience, you give your organisation the best possible armour to withstand an attack on its reputation.

Can we help find your Responsible Manager training solution?

Aspiring to become a Responsible Manager?
Our Responsible Manager Fundamentals includes what aspiring RM's need to know about their role and responsibilities, and the industry regulations licensees must comply with.

Already a Responsible Manager needing CPD?
We cover various aspects of risk management and accountability, cyber resilience, AML compliance, climate risk reporting, and regulator enforcement approaches.

Needing a refresher on Australian regulations?
Our Regulation of Australian Financial Services is designed for those who are planning to take on the role of a responsible manager for an AFSL and/or needs a refresher of Australian regulations.

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