Banking Industries with Reputational Risk

Many industries now carry stigmas that did not exist 10 to 20 years ago. Financial institutions are now setting up governance plans and response strategies for this ever-growing list of industries.

It is important for banks to understand the elements of a successful reputational risk program. This program should include governance by maintaining an enterprise policy that establishes the approval requirements for business activities with potential for reputation risk. It’s also important to establish committees, such as regional reputational risk committees and line of business/front line unit reputational risk committees, for oversight and management of reputational risk.

There should also be quarterly enterprise-wide reputational risk metrics and reporting to management and the Board of Directors and monthly reporting on watch items, key risk indicators, and a summary of themes from each reputational risk committee that are reported to management.

In addition, there must be review and challenge of reputational risks identified and review of key reputational risk metrics and all newly opened reputational risk issues.

Finally, annual risk training is essential to identify and escalate reputational risk and, where appropriate, additional training based on each employee’s role in protecting and strengthening the financial institution’s reputation.

Mick Ankrom, Jr., Chair of the RMA Board and head of enterprise credit risk at Bank of America, noted in a session at the RMA Annual Risk Management Conference, that “managing reputational risk is an important part of our values and commitment to growing in a responsible and sustainable manner.”

“The financial services industry has become increasingly aware of the reputational risk it faces as part of its daily business activities,” said Ankrom.

Therefore, creating an effective reputational risk framework is important across all industries. Best practices include establishing governance and management; conducting materiality assessments and benchmarking; engaging stakeholders; enhancing policies and practices in key areas; defining metrics and reporting; and telling your story with candor.

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