Validating a risk culture instrument for the banking sector in South Africa

Compliance failures remain a big challenge within the financial services sector, despite various regulatory reforms after the 2008 global financial crisis. However, risk culture, a key consideration in sound risk management, remains poorly measured in South African banks, even though banking institutions acknowledge its importance. This study followed a quantitative survey approach, whereby one prominent South African bank was selected to validate a risk culture instrument. The study aims to develop a comprehensive risk culture instrument and carry out a validation process that measures risk culture accurately within banking institutions. A sample of 379 employees in the risk field completed a questionnaire containing 46 closed-ended items. The instrument was found to have six distinct constructs that measure risk culture. Using exploratory and confirmatory factor analysis, the constructs were validated as reliable and valid measures of risk culture in a bank. This means future researchers could use this instrument to further research the influence of risk culture on an organisation’s performance and success. This valid and reliable research tool enables managers in financial institutions to accurately measure risk culture constructs in order to make well-informed risk management decisions. Banks can thus enhance their risk culture through effective communication, good governance, employee incentives, competencies, compliance with regulations, and enhanced controls to mitigate risks.Business Managemen