Risk Culture & Culture Risk: not a play on words

The purpose of this article is to suggest a primer for culture risk, aimed at outlining actionable and practical approaches distinguishing between ‘risk culture’ and ‘culture risk’. The topic, originally addressed by the Financial Stability Board (FSB, 2014), has recently garnered renewed interest due to the Draft Guide on Governance and Risk Culture disseminated by the European Central Bank (ECB, 2024), setting out supervisory expectations, informed by the Capital Requirements Directive (CRD), European Banking Authority (EBA) guidelines, and international standards. Although the subject may be perceived as abstract, nevertheless it holds significant concrete relevance, despite the inherent challenges of measuring it. Therefore, the purpose is to move beyond the abstract boundaries of principled statements, striving instead to establish a framework that forms the logical foundation for properly managing the culture risk, which could aptly be described as the ‘mother of all risks’. The stated insights may serve as a roadmap for risk managers who are tasked with addressing a significant and, in many respects, fundamental challenge. The remainder of this article, which is a theoretical paper based on conceptual analysis, is structured as follows: the first section explores definitions of risk culture and culture risk; the second outlines potential roles of corporate functions in mitigating culture risk. The third section examines the implications for the Risk Appetite Framework. The final section draws preliminary conclusions and sets the stage for future challenges