Risk analyst urges sea-change in profit culture

by Gill Montia

Story link: Risk analyst urges sea-change in profit culture

Palisade Corporation is adding to the debate on the banking crisis by urging the financial sector to “evolve to embrace risk”.

The company, which specialises in risk and decision making analysis software, believes that over the past two years warnings have gone unheeded because of the pursuit of wealth and a booming economy.

Palisade also suggests that traders have perceived risk departments as over-cautious and therefore “an obstacle to business being done and bonuses earned”.

The firm points out that sophisticated risk analysis tools are available but that accuracy of output depends on the quality of the data input and the financial sector therefore needs to adopt a realistic attitude to risk.

The group’s managing director Europe, Craig Ferri, explains: “If we are to avoid another catastrophic meltdown in the future, the risk department must be given more prominence. Along with intelligent risk analysis tools it must become an integral element of financial institutions”.

He adds that this will require a “sea-change in the profit culture”.

In recent days, the chairman of the Financial Services Authority (FSA) admitted that in the lead up to the credit crisis, the regulator failed to assess risk accurately.

Speaking on the BBC’s Andrew Marr Show last Sunday, Lord Adair Turner stated that with hindsight, the FSA was “focused too much on individual institutions and the processes and procedures within them and not adequately focused on the totality of the systemic risks across the whole system and whether there were entire business models, entire ways of operating, that were risky.”