In the light of the recent Citigroup’s settlement of mis-sold Hedge Fund investments, we issue this brief opinion piece on the interactions of Risk, Trust and Innovation:
We don’t think it is so much about TRUST or trusting institutions anymore but has always been about Caveat Emptor (Buyer beware).
No investor can or should trust institutions without conducting their own due diligence and risk profile / risk appetite assessment first. In the past investors could possibly rely on professional ‘trusted’ advisors to help then navigate the due diligence part, at least in theory. Risk and risk appetite assessment was the more tricky part and not even the professionals had sophisticated enough tools to help their clients through this quagmire landscape.
We believe this is the unintended consequence of over regulation or an over regulated environment. Relational trust has been eroded in favour of ‘legislative trust’ and therefore the impersonal ‘hand of public scrutiny’ is supposed to protect the innocents.
We need to ensure the pendulum swings back to a happy balance between relationship and legislative trust, unburden ourselves from the over regulated and expensive compliance environment we have allowed to engulf and overwhelm us, not adding any value, but stifling innovation instead.
Risk has as one of its essential elements TRUSTas a foundation.
Trust on the other hand has many other factors that interplay and interact on it.
Markets are created when there are needs that are not immediately met from you local environment and therefore scarcity exists. Market participants step in to fill this ‘needs’ void.
As for any subset of Risk, either Operational, Market, Liquidity, Interest, etc. a big part of the assessment process it not just about looking inward and assessing the risk profiles, risk attitudes, risk systems, etc., but an important part of the process is stepping into the realm of uncertainty and looking outwards and the wider market context we find ourselves in.
Being too prescriptive about the individual risk profiles and control systems will only stifle innovation and growth. Some say we need a very healthy dose of growth right now, whereas others are content with the new world order of the ‘anti growth economic’ bias (our description of austerity) we have already entered in the Western Hemisphere.
Our Value Oriented Risk Management is the positive Risk Management focus, acting as an enabler ensuring that you unlock value in your organisation a midst the regulatory compliance constraints added to your management agenda.