Reputation risk management in financial firms: protecting (some) small investors

Abstract

Purpose – This paper aims to provide an explanation and evidence for the recent lack of retail financial product failures in Canada in the face of a (formal) regulatory failure. Design/methodology/approach – The paper applies the literature on self-regulation and reputational risk management to a detailed investigation of the marketing of financial products to Canadian retail investors. Internal approval processes for many different players in the retail financial industry were analyzed in detail primarily using interviews. Findings – The author was able to identify associations between structures and policies at financial firms and outcomes for retail investors. Knowing that prevention is more effective than mitigation, marketers of financial products would generally welcome increased state intervention in terms of more and better information disclosures. Research limitations/implications – The research contributes to our understanding of self-regulation in financial markets, specifically addressing what firm characteristics may be related to positive and negative outcomes for small investors in complex structured financial products. Practical implications – Regulators may be able to imply the research findings in selectively allocating scarce resources to policing firms that may be more inclined to participate in riskier behavior. Financial firms may be able to influence the decisions relating to how regulations are designed and implemented and which products are sold to which clients to minimize reputation risk. Originality/value – This is the first time, to the author's knowledge, that the reputation risk management channel has been analyzed in terms of influencing outcomes for retail (small) investors.

Reputational risks in banks: A review of research themes, frameworks, methods, and future research directions

“…The results showed that banks relied on development or planning or environmental approvals and assessment by non‐environmental experts as a means of mitigating the exposure to reputational risks on caused by delays in obtaining environmental approvals. Saleuddin (2014) deployed a case study approach coupled with interview research technique to provide insight into how self‐regulation help minimize reputational risks in financial firms in Canada. Despite the depth of context that these case studies provide, the limited use of the method may be explained by the shared lack of generalization of the results of case studies.…”

“…Management related mitigation factors involves the preparation of an organization to deliver on its commitments (Miklaszewska et al., 2020), increasing reputational risks awareness (Trostianska & Semencha, 2020) inter alia . Governance related mitigation factors include transparency in environmental, social and governance policies, effective reputational monitoring system, adoption and implementation of the Equator principles (Banhalmi‐Zakar, 2016; Eisenbach et al., 2014; Mason & Ying, 2020), standard model for the reporting of non‐financial results, remuneration policies, self‐regulation (Saleuddin, 2014), inter alia .…”

Reputational risk disclosure in the firms of Pacific Alliance

“…In terms of the regulatory framework, accounting practices and international financial reporting standards have promoted risk disclosure standards, helping to raise the quality of the information to promote market transparency (Miihkinen, 2012). International organizations such as the Basel Committee on Banking Supervision and the International Accounting Standards Board and Security Exchange Commission exert pressure to increase risk disclosure (de Codes Elorriaga, 2010; Rajab and Handley-Schachler, 2009; Miihkinen, 2012; Hogan and Lodhia, 2011; Saleuddin, 2014).…”

Reputational Risks in Banks: A Review of Research Themes, Frameworks, Methods, and Future Research Directions

“…Management related mitigation factors involves the preparation of an organization to deliver on its commitments (Miklaszewska et al, 2020), increasing reputational risks awareness (Trostianska & Semencha, 2019), inter alia. Governance related mitigation factors include transparency in environmental, social and governance policies, effective reputational monitoring system, adoption and implementation of the Equator principles (Mason & Ying, 2020;Banhalmi-Zakar, 2016;Eisenbach et al, 2014), standard model for the reporting of non-financial results, remuneration policies, and self-regulation (Saleuddin, 2014), inter alia.…”