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Why banks keep getting non-financial risk wrong

Despite decades of reform, banks still struggle with non-financial risk — weighed down by bureaucracy, diluted accountability and a culture of compliance over control.

Mark Linter Mark has held senior leadership roles across banking, government, and risk management. He spent over 20 years in non-financial risk management at global banks.
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While non-financial risks don’t offer material strategic upside, they can pose significant downsides if left unmanaged, writes Mark Linter. Reuters / Hollie Adams.

For all the money and time banks spend on compliance, one uncomfortable truth remains: no one is really accountable when things go wrong.

Non-financial risk (NFR) — once a back-office afterthought — has exploded into a bureaucratic industry, rich in frameworks and poor in outcomes. And yet, decades after the 1995 collapse of Barings Bank sent shockwaves through global markets and brought regulator attention to non-financial risk, we’re still papering over the real issues with process documents and calling it progress.

Non-financial risk is back in the headlines this month, with APRA’s new sanctions on ANZ and a confronting consultant’s report following a series of scandals in bond trading.

Bond trading involves credit and market risk — strategic and financial risks that organisations take on intentionally to generate profit. By contrast, non-financial risks are uncompensated and an everyday part of doing business. Organisations operate with the knowledge that these risks exist, and they make conscious decisions about how much to invest in managing them.

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