The Basel Committee’s 2011 Principles for the Sound Management of Operational Risk points to the importance of people, processes, and systems.1 At most firms, the emphasis appears to be on processes and systems run by risk and compliance teams, while ‘people concerns’ are typically relegated to Human Resource departments where they are likely to receive less significant budget commitments and C-suite bandwidth. Behavioral risks can fall through the cracks between these functions, getting lost at the seams of a firm’s risk management framework.
The Operational Risk Exchange (ORX), we noted in the Conclusion to our report last year, has estimated that the financial industry paid over $600 billion in punitive fines and customer remediation costs since the Financial Crisis. This is in addition to the billions spent annually on governance, risk, and compliance. Such expense is both unsustainable and insufficiently productive of desired outcomes.
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