Reputational Risk in Financial Services – The Need for a Greater Focus

Abstract

Reputation is one of the key drivers of the performance of any entity. It encompasses the entire ecosystem of stakeholders of an economy, with a country’s reputation at the apex, and cascading down with strong interlinkages among all constituents. A strong positive reputation allows corporate entities to attract human resources and cheaper capital, price their products at a premium that increases profitability, and develop longterm relationships with customers and supply chain partners. As of 1 January 2012, reputation accounted for nearly 26% of the total market capitalization of the S&P 500 (Cole. 2013). Damage to reputation can therefore impact the performance of any ongoing concern, and risks to reputation have to be managed effectively to deliver value to all stakeholders. The impact of a risk event in financial services can have far-reaching consequences and affect the economy through a ripple effect, as demonstrated during the various financial crises, recent and remote. These have ultimately had a bearing on the reputation of the sector and impacted it negatively. The financial services sector suffers from a marked trust deficit between the participants on the demand and supply sides. Globally, the Edelman Trust Barometer 2021 indicates that trust in the financial services industry is the lowest, a trend that has continued over the last 10 years despite registering an improvement during the decade.