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Elements of reputation management
Prevention
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Image building: positive narrative, value and ethos
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Stakeholder mapping and relationship building
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Scenario identification and regular updates
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Communication strategy and contingency planning in case of event
Mitigation
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Communication: three Rs: Regret – Reason – Remedy
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Rapid response
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Transparency
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Stakeholder differentiation
Reputations must be built through continuous care and attention – not just in times
of crisis. How you respond to client complaints, deal with small operational incidents
and interact daily with all your stakeholders will affect satisfaction and loyalty. The
result is either negative or positive for your reputation. A bad experience can mean the
end of a customer relationship, whereas a good experience will strengthen customer
loyalty. It’s a lesson that many in the financial industry have yet to learn.
For incidents of all types as much as for crises, the true measure of character is how
an organization or individual responds. A U.K. firm, mentioned anonymously by the
Financial Conduct Authority, has this wonderful motto to enhance culture and conduct
within its teams:
12
“What defines you is not the mistake you make but how you deal with it.”
12
Source: FCA, “5 Conduct Questions” Industry Feedback for 2017 Wholesale Banking Super-
vision, April 2018.
Conclusion
R I S I N G O P E R A T I O N A L R I S K S
Operational risks are generated by business activities and by operating environments.
With the evolution of the financial services industry, operational risks have changed
and intensified over several areas. This requires a new taxonomy of risks and for spe-
cialists in some technical or regulatory areas to manage new risks. In recent years,
technological development has had a profound effect on operational risks. With the
growth of digital business, and particularly online and mobile communication, data
are vulnerable to many forms of cybercrime, which is now the top operational risk
for the financial industry.
1
Firms are facing a huge rise in the volume of data as well
as changes in the way the data are handled and transmitted. Combined with stringent
regulatory demands, and the consequences of non-compliance, this poses a huge chal-
lenge for operational risk management. Regulators themselves, especially in the U.S.,
have started to cooperate with the private sector to understand best practice and design
more appropriate legislation. They should be commended for that initiative, and I wish
every country would do the same.
Technology, of course, also brings many benefits from a risk perspective. The
development of data analytics, big data, artificial intelligence and machine learning
enables us to better understand behaviors and provides powerful insights into the nature
of risk and cause and effect. It is therefore somewhat ironic that the SMA regulation for
operational risk comes back to simple arithmetic to estimate capital, but history will
tell how wrong this has been.
Operational risks have been profoundly affected by the transformation of the bank-
ing model and changes in the way other financial services are delivered. Third-party
management and vendor risks are now strongly apparent, with consequences for busi-
ness quality and continuity, knowledge retention, reputation, legal exposure, costs and
process complexity. There are also implications for the security of information handled
by third, fourth, even fifth parties. In addition, after ten years of cost-cutting following
the financial crisis, we might see (or are already seeing?) unintended and unwelcome
consequences for the quality of services and resources. This may lead to expensive
operational incidents that dwarf any cost savings.
1
Risk.net survey 2015 to 2018 inclusive.
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Operational Risk Management: Best Practices in the Financial Services Industry, First Edition.
Ariane Chapelle.
© 2019 John Wiley & Sons Ltd. Published 2019 by John Wiley & Sons Ltd.
232
CONCLUSION
Furthermore, technology developments and alternative service providers such as
e-commerce giants are challenging traditional business models and encouraging new
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