Tom Fox welcomes back Vera Cherepanova on this episode of the Innovation in Compliance Podcast. Vera is an ethics advocate, consultant, author and speaker. She joins Tom to talk about behavioral risks, the steps behavioral scientists take to analyze risk, and strategies from financial institutions that other industries can use.

Behavioral Risk in The Banking Sector

Behavioral risk is more or less the same across every industry. What is specific to the financial industry however, and banking in particular, is that the individuals work with money. This creates higher risk as the outcomes can be more immediately seen and felt by the customers. 

The Regulator's Role

"The regulator has a very limited role in mandating culture because no regulator can mandate what kind of a culture and organization needs to have," Vera begins. The compliance regulator can mandate what the culture is, but how that corporate culture is going to be in reality will not be up to them. Speaking specifically of the UK and the Netherlands, Vera expresses that the regulators in these regions have played a largely educational role in the business industries. She gives Tom a few examples of the events the regulators have done in these regions.

Assessing Behavioural Risk

Tom asks Vera to talk about some of the practical steps behavioral scientists take when analyzing behavioral risk. Vera cautions that the first thing to understand when applying behavioral science is that interventions don't always work. The first thing that scientists do is assess risk using a method called ethnography. They want to understand what is really happening inside organizational teams. They focus on subcultures, and then compare that against what is written in policies and regulations. Holistic cultural assessments aren't done as behavioral scientists concentrate on specific teams. Surveys are also only used to categorize the data the scientists have collected, and to generalize some of their observations. 

Strategies To Emulate

The methods financial institutions use to conduct audits are accessible for any industry. Looking into behavioral risk on top of a risk management framework is one concept that can be emulated across industries, as well as using subculture audits. These skills will be modified for each industry but Vera remarks that the basic concepts will be the same across the board.

Resources

Vera Cherepanova | LinkedIn 

Studio Etica

European Banks Are Behavioral Risk Pioneers. No, Really.