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Case Study on a Potential Application of Failure Mode and Effects Analysis in Assessing Compliance Risks

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  • Ferenc Bognár

    (Department of Management and Business Economics, Budapest University of Technology and Economics, 1117 Budapest, Hungary)

  • Petra Benedek

    (Department of Management and Business Economics, Budapest University of Technology and Economics, 1117 Budapest, Hungary)

Abstract

Assessing and reducing compliance risks can now be considered one of the core criteria for business success. While failure mode and effect analysis (FMEA) is widely used in engineering, its application in the financial sector is quite novel, primarily related to compliance risk assessment. This paper presents the results of exploratory research based on the potential application of FMEA in a focus group of compliance experts at one of the largest Central and Eastern European commercial banks. This study aims to establish a process for assessing compliance risks that builds on the strengths of both the qualitative and quantitative assessment methods. Applying FMEA based on a nominal group technique and further statistical analysis provides an opportunity to compare expert assessments and the consensus level of the participants. As a result, the similarity or difference of the assessment patterns can be quantified, providing objective feedback on the evaluation. Finally, this paper proposes lifting the detectability of failures as an evaluation dimension to the same level of importance as the probability and impact of non-compliance and using agreement testing statistical methods.

Suggested Citation

  • Ferenc Bognár & Petra Benedek, 2021. "Case Study on a Potential Application of Failure Mode and Effects Analysis in Assessing Compliance Risks," Risks, MDPI, vol. 9(9), pages 1-16, September.
    • Handle: RePEc:gam:jrisks:v:9:y:2021:i:9:p:164-:d:632049
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    References listed on IDEAS

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    1. Tuan-Hock Ng, 2013. "Is the risk management committee only a procedural compliance?," Journal of Risk Finance, Emerald Group Publishing, vol. 14(1), pages 71-86, February.
    2. Ayadi, Rym & Naceur, Sami Ben & Casu, Barbara & Quinn, Barry, 2016. "Does Basel compliance matter for bank performance?," Journal of Financial Stability, Elsevier, vol. 23(C), pages 15-32.
    3. Sutton, Steve G. & Arnold, Vicky, 2013. "Focus group methods: Using interactive and nominal groups to explore emerging technology-driven phenomena in accounting and information systems," International Journal of Accounting Information Systems, Elsevier, vol. 14(2), pages 81-88.
    4. Seyed-Hosseini, S.M. & Safaei, N. & Asgharpour, M.J., 2006. "Reprioritization of failures in a system failure mode and effects analysis by decision making trial and evaluation laboratory technique," Reliability Engineering and System Safety, Elsevier, vol. 91(8), pages 872-881.
    5. Tatiana Dănescu & Ovidiu Spătăcean, 2011. "Assessing Complience With Corporate Governance Principles In Case Of Romanian Financial Investment Companies," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 1-18.
    6. Sheedy, Elizabeth & Zhang, Le & Tam, Kenny Chi Ho, 2019. "Incentives and culture in risk compliance," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
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    Cited by:

    1. Nikolai I. Berzon & Maksim M. Novikov & Elena L. Pozharskaya & Yulia I. Bakhturina, 2022. "Monitoring the Modern Experience of Financial Risk Management in Russia Based on Corporate Social Responsibility for Sustainable Development," Risks, MDPI, vol. 10(5), pages 1-16, April.
    2. Ferenc Bognár & Csaba Hegedűs, 2022. "Analysis and Consequences on Some Aggregation Functions of PRISM (Partial Risk Map) Risk Assessment Method," Mathematics, MDPI, vol. 10(5), pages 1-19, February.

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