Organised by

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7th BANK EDUCATIONISTS CONFERENCE 2005
Organised by Indian Institute of Banking
Finance in Collaboration with Indian Banks
Association (IBA)
Hyderabad, 28 November 2005
Technical Session I Risk Management and HR Issues
Gordian Gaeta The Asian Banker, Singapore
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Todays Agenda

• Introduction to The Asian Banker
• Human Resources Risk Management
• The Future of Banking HR Requirements
• A Call for Action

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7th BANK EDUCATIONISTS CONFERENCE 2005

• Introduction to The Asian Banker

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The Asian Banker is in three businesses serving
the financial services industry ...

• Asian Banker Research
• Asian Banker Editorial
• Asian Banker Forums

www.theasianbanker.com
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delivering business intelligence to the
financial services community

• Asian Banker Forums
• Asian Banker Summit
• Roundtables Consultative Forums
• Industry Outlook Briefings
• Executive Programs

• Asian Banker Research
• Excellence in Retail Financial Services
• Asian Banker 300
• Benchmark Exchange
• Proprietary and Generic Research

• Asian Banker Publications
• Asian Banker Journal
• Asian Banker Interactive
• Asian Banker Reports

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The Asian Banker Global in Scope, Regional in
Coverage
Corporate Governance
Rep London
Risk Management
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Rep San Francisco
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New Focus Korea
New Focus Japan
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Payments and Operations
Rep New York
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Branch Office Shanghai
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Backoffice processing
Branch Office Hong Kong
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Branch Office Kuala Lumpur
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New Focus Middle East
Main Office Singapore
Distribution Strategies
Retail Payment initiatives
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7th BANK EDUCATIONISTS CONFERENCE 2005

• Human Resources Risk Management

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Human resources are at the core of risk

• In recent years we have come to comprehensively
  understand the structure of risk the negative
  variance on an expected outcome
• While we can understand risk, its predictability
  remains elusive as with all chaotic systems
• People shape the risk profile of businesses
• At the same time humans are the main solution to
  risk issues so we separate risk responsibilities
  and build risk systems
• but, often, we fail to instill in our people
  sense of accountable responsibility and
  understanding of the risk reward relationship
  inherent in all undertakings

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Risk the negative variance on an expected
outcome
Typical loss distribution
Expected Losses
Unexpected Losses
RISK
Frequency/ Probability f
Skewed Outcomes
Events
Traditional outcomes
Value of Losses/Outcomes
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Largely, people cause negative outcomes
Number of operations losses by causality factors
Process 19

• Inadequate control (8)
• External error (3)
• No control (2)
• Late receipt (1)
• Increased volumes (1)

People 60

• Lack of attention (40)
• Poor communication (10)
• Inadequate training (7)
• Unclear roles (3)

Systems 21

• Failure/bug (8)
• Inadequate functionality (7)
• Feed late (1)
• Incorrect data (1)

Source CSFB, Global Operations, figures rounded

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Currently, the solution seems to separate risk
responsibilities and build risk systems
Primary responsibility for Risk
Bank spending emphases
CRM
In
Cost management
Customer acquisition
Differentiation
Marketing
HUMAN RESOURCES
MA
This Will Be a spl Dept??
Channel
Brand equity
Risk
Technology
Source Risk Management Survey 2005, The Asian
Banker
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rather than instilling an accountability
spirit in staff at all levels

• Most staff live in world of insured risks, they
  act as administrators and if they follow the
  rules, they remain generally gainfully employed
  and unaffected by the outcomes
• Too often there is widespread lack, in staff, of
  risk recognition, a sense of lack of
  responsibility for failure and by consequence, a
  will to find new or better ways of discharging
  their obligations
• Adding layers of specialist management,
  segregation of roles and systems support may
  address the tail end of the risk distribution
  but compounds the moral hazard problem for
  staff in daily undertakings
• Current human resource development does not
  foster individual accountability

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When empowering staff, risk profiles change
because behavioral standards deteriorate

• Business specialisation and compartmentalisation
  of functions, delegation of activities and roles
  combined with third party involvement is growing
• Fragmentation reduces overall perspective and
  pushes authority further down the line.
  Individual ambition and self-actualisation is
  driving this further??
• Competition, constant change and performance
  pressures increase the tendency for expediency
  without regard to risk implications
• With a growing pace of change, we place great
  reliance on rules, handbooks and manuals but
  without specific behavioral principles to keep
  risks in check or to manage behavioral standards
  

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Behavioral standards are the complement to
competence in true professionalism
Universal, broad-based, compelling
Community, narrow-based, voluntary
Source
Professionalism
Codified, contestable, democratic
Commercial Other Laws
Codes of Conduct
Competence
Specificity
Fuzzy, elective, organic
Morals Culture
Integrity
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At business level, there is unanimity on a need
for behavioral standards
Business Ethics A system of (behavioral)
principles (specific to the industry) that help
determine right from wrong, good from bad in
daily (business) life or when facing conflicts of
interest (in discharging our professional
responsibilities) Essentially, business ethics
give guidance in autonomous choices of
individuals when facing conflicts of interest or
in situations in which an individual has a
personal interest sufficient to appear to
influence the objective exercise of duty
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Yet, violations are widespread and a real life
threat

• 48 of American workers admit to doing something
  wrong or illegal on the job, among others
• cutting corners (16)
• covering up incidents (14)
• lying to or deceiving customers (9)
• 56 say they have considered it
• Between 25-60 of employees surveyed admit to
  having seen unethical behavior
• Only 11 of financial services managers who
  witnessed unethical behavior reported their
  concerns
• Over US50 billion losses, fines and damages due
  to staff misconduct in high profile cases

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7th BANK EDUCATIONISTS CONFERENCE 2005

• The Future of Banking HR Requirements

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Banking of the future may look quite different
than today

• Retail banking will come to be the largest part
  of banking
• Non traditional products and specialized segments
  will provide the base for growth.
• The shift from manufacturing to distribution will
  continue
• Providing customer solutions will shift emphasis
  from offering products to innovation ( focused)
  at the point of sale and advice
• Non-strategic activities of banks will move to
  third party suppliers
• Largely internal factors will determine success
  or failure of the bank mainly through ensuing
  risk profiles
• People will be at the core of any strategy -
  they will influence the level of governance and
  regulation thereby determining the opportunities
  available

Source Mercer Oliver Wyman, various publications
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Human resources will have to grow with business
requirements

• As many activities and functions will be
  outsourced, operational staff of today may have
  to migrate towards front line jobs
• Traditional staff trained only in selected
  products will become a liability to the
  distribution of advice and solutions
• Business skills, marketing and understanding
  customer needs will pose a different kind of
  challenge for existing staff
• Assessing and extracting higher customer value
  requires better analytical and servicing skills
  tailored to the real needs of the market rather
  than the product offering of a bank
• Risk appreciation and management skills will need
  to migrate to the customer interface

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7th BANK EDUCATIONISTS CONFERENCE 2005

• A Call for Action

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The dilemma what we train develop may not be
all of what we need for the future
What we train .
What we need.
Competence and Knowledge Management Rules and
Regulations Products
Responsibility and Accountability Values Sellin
g and solution skills
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The world of tomorrow calls for a different staff
and different development priorities
Growing competence alone will not win a
different mind set and conduct is necessary

• Real accountability, regular non-supervisor
  appraisals and subsequent staff action
• Augmentation of management control through a
  staff development agenda
• Models and codes for behavioral standards with
  commensurate corporate culture and disciplines
• Reward systems that engender functional behavior
  and quality business
• Clear standards for selling practices and
  customer service
• Widespread appreciation for business risks and
  regulations to safeguard the bank

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Thank you
Gordian Gaeta The Asian Banker, Singapore