Aligning Risk and Reward

The bank of England’s Prudential Regulation Authority in tandem with the Financial Conduct Authority have issued new rules which are aimed at strengthening the alignment between risk and reward. Although these new rules primarily affect businesses within the finance and banking sector the underlying principles could equally apply to any organisation.

In particular, the PRA and the FCA take the view “that more should be done to discourage excessive risk-taking and short termism and to encourage more effective risk management.” The new rules are therefore designed to improve the safety and soundness of firms as well as improving consumer protection and market integrity. It would be a rare leader who would not sign up to the principle of improving the safety and soundness of his/her business; but equally it would be a rare leader who did not admit that in a time when disruption can come from anywhere, business security is not always easy to achieve.

For those who are determined to succeed, the name of the game is now collaboration, agility and insight; all combining to create an innovative organisation which will shape future success. Yes, drawing a link between accountability and remuneration will go some way towards making people more aware of the consequences of their actions but it will not create the game-changing shift which businesses need if they are to future proof themselves, create exceptional customer experiences and become innovation leaders.

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