There is nothing more essential to the efficiency of capital markets than investor confidencewoman reviews capital markets representing investor confidenceit’s analogous to the United States as apple pie and baseball, which are clearly on top of my mind being that it’s fall in New England and the Red Sox are in the playoffs.

Since 2008, client and investor confidence in the global financial system and the institutions within has understandably plummeted. While financial services firms have been fighting Capital Adequacy requirements, tweaking CVA models, and measuring VaRs implemented partially as a result of 2008, major issues as it relates to reputational and operational risk have been largely ignored. The multitude of mini flash crashes, the ongoing foreign and domestic cyber-attacks, IPO glitches, and the astounding trading scandals resulting in epic fines all reflect that operational and reputational risk management needs a massive overhaul and modernization at many financial institutions.

In spite of sound risk committees at these large institutions, I have the opinion that there is a lackadaisical attitude towards reputational risk. I attribute this to the large computational and IT demands that market and credit risk require as well as the notion that market and credit risk generally have an immediate direct link to the bottom line, therefore they are more top of mind. Yet, credit, market, liquidity and operational risk all feed into reputational risk. Reputation matters for counterparties to actually want to trade with you. Reputation matters when employee fraud/theft occurs. Reputation matters when credit default swaps become illiquid and are called. Reputation matters when you want to hire ethical talent. Reputation matters when there is a denial of service attack on your website prohibiting customer’s access to their accounts.

As capital markets firms look to modernize and foster growth, it is of utmost consideration to focus on repairing their reputation to restore investor trust. And to achieve this, a heightened investment in holistic risk management is necessary – especially from a business process, systems and corporate culture perspective. Historically, firms were able to ensure investors that their money is safe and accessible based on personal relationships. In today’s digital banking environment, firms need to invest in their compliance, security, governance and fraud detection systems to strengthen their operational risk, and as a result will improve reputational risk.