Risk management in the banking sector: the role of management accountants

Effective management of risk is a much-debated topic in the banking sector. Nearly a decade on from the financial crisis, organisations continue to grapple with a key question about the line between short-term gain and long-term success: what makes an influential risk manager?

Management accountants, with their combination of business insight and frontline experience, are key advisers to decision-makers on risk management. But while many management accountants are consulted when it comes to this function, not enough businesses are looking to them for their unique insight and expertise, despite the value they bring.

The Chartered Institute of Management Accountants (CIMA) recently sponsored research, undertaken by a team from the University of Groningen in the Netherlands, to examine how management accountants influence risk management, published in the report ‘Risk Management in the Banking Sector’. As part of the research, the team spoke to 271 management accountants, and analysed the impact of their personality on the extent to which they were involved in providing risk management advice.

Personality type

Within a bank, the business, technical and people skills possessed by management accountants means that they ought to exert considerable influence over the quality of its risk management strategy. Indeed, their role makes them ideal consultants. However, the research drew the interesting conclusion that it is also the personality of the individual management accountant that has an impact on their influence on the wider business.

The study found that the ability to encourage or discourage risk-taking behaviour varies greatly from firm to firm, and has significant implications for the business. The researchers analysed what types of personalities are most likely to get involved in managing risk for a bank. The result was that the most valuable management accountants – those who naturally have the greatest positive impact on an organisation – demonstrate a blend of different personality traits.

As might be expected, an analytical personality is a significant boon to risk management, and management accountants with highly analytical minds are a natural fit when it comes to this role. However, intuition and judgement also play an important role, demonstrating that the ideal management accountant has a balance of both.

The Personality Colour Code is a useful tool for evaluating different personality traits in individuals. It is also a helpful yardstick for banks looking to hire new management accountants, particularly with a view to bringing them into risk management teams.

Using the code, the research found that the ideal personality colour for management accountants is ‘yellow’ – meaning enthusiasm, persuasiveness and influence*. These traits are present in those open to new experiences, those who have an inquisitive nature and relish interacting with colleagues to get the job done. They are the traits valued by employers, as is seen in the Chartered Global Management Accountant Competency Framework and, simply put, means that those with technical skills are able to shine through being social people.

However, what about management accountants already working for a bank with a desire to continue to improve their skills? The research offers some valuable advice here for those looking to enrich their knowledge.

For example, be cautious when discussing risk management issues within an organisation. The management accountants in the study agreed that there is a thin line between advising managers on risk management issues and being too heavily involved to be able to critically assess those managers’ policies and activities.

Position of influence

We also found other issues related to the structure of risk management processes within the bank. One common concern is where management accountants sit in the defensive hierarchy.

Our work suggests that, while management accountants are consulted, it is not as often as they should be. Where the traditional first line – the operational managers – can focus on the implementation and the third – the internal auditors – assumes the role of independent assessors, management accountants sit somewhere in the middle. It is this very position that gives them a unique and beneficial role when it comes to advising on risk management.

In summary, banks should take personality into consideration when hiring a new management accountant; and management accountants need to be acutely aware of how they influence and manage risk.

The issue of risk is not going to disappear. It is at the core of the banking sector and will only be complicated further as banking evolves. Therefore, it is vital that banks understand the role of management accountants in this process. Only those that do will truly get on top of the risk management conundrum.

Andrew Harding is CEO, management accounting, at the Association of International Certified Professional Accountants.

*red: assertive, competitive, results-oriented; blue: organised, systematic, attentive to detail; green: dependable, loyal, stable and calm