Blog: Mind the Gap – a control framework for lenders could deliver better outcomes for all


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Tony Ward

Bill Blain refers to life’s biggest risks being the “no see’ums”. Donald Rumsfeld preferred to categorise risk as the “known knowns…known unknowns… and unknown unknowns”. Both are right in pointing out that risk exists everywhere and for very good reason. Life is fragile and its complexity makes it a risky business.

Mortgage lending is a complex business, too. Gone are the days when risks were fundamentally to do with just funding and getting products to market. Today, market risks, regulatory conduct risks, as well as financial capital risks inform much of what a lender has to manage. When you reflect on the complexity, it is clear that the vast majority of change in the lending industry since the 1990s has been driven by regulation rather than demand side evolution.

And this is before we consider the impact of market volatility. Systems, processes, and business culture that should be in step often stand alone in practice with the significant risk that things fall between the cracks. The ability to understand, weigh, and prioritise risks has never been so important in a world of global capital, volatile markets, complex tech, and distributed workforces.

I make these observations because understanding where the gaps in risk management occur is vital for executive and non-executive board members alike. Non-executive directors are at risk of exactly the same types claims as other directors, in so far as their duties are identical to those of executive directors. The fact that they may not have a daily role in the running of the company does not mean that they are excluded from any of the standard director’s duties enshrined in legislation and general corporate governance codes.

As organisations grow so do the chains of command, and the capacity for misunderstanding or, worst-case, wilful disobedience, grows too. Either way the buck stops in the boardroom, whatever the size of the company.

This means that understanding what risks the business faces in delivering its target operating model are crucial. Things can wrong anywhere in the chain and at any level.

To give you an example. I have personally seen in my various roles how this can go awry. While policies may be written and be seen to be followed, the culture of an organisation can mean that processes are effectively circumnavigated. Bad behaviour, such as the judicious editing of minutes, can leave senior heads who were not in the room when a certain decision was taken with a very different interpretation of events. The gap between what is desired and believed and what happened in reality can be significant. It might not be deliberate, but ignorance is no defence in the eyes of the law.

We see this too in organisations where, in order to manage a risk, a new start-up may employ a specialist to manage a particular type or set of risks. Specialists may be ideal in large corporate environments but they may not offer the breadth or expertise in newer start-up environments, where understanding bigger pictures and the impact upon other business areas of a specific action is imperative.

It’s why we have developed our Mortgage Control Framework. It is designed to address these issues and give boards the comfort many might desire when they reflect upon how much they really know about what is going on under their feet.  No-one can promise to eliminate the risk in mortgage lending from unknown unknowns but for everything else there is at least the Mortgage Control Framework.

Tony Ward, Non-Executive Chairman, Fortrum

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