For two years in a row, the Bank of England’s Prudential Regulatory Authority (“PRA”) has warned HSBC that it isn’t doing enough to manage non-financial risks.

According to Samir Assaf, HSBC’s top investment banker, on a recent conference call the PRA told the firm that the progress made on non-financial risk management was insufficient. These non-financial risks are related to staff misconduct, bank culture, and compliance.  Assaf says the warning was reiterated earlier this year and he considers this an “emergency” that requires immediate attention. 

According to a confidential survey by the U.K.’s Banking Standards Board, compared to 6 other investment banks, HSBC ranked last when staff answered questions about their colleagues “acting honestly and ethically,” “flexing ethical standards to make career progression” and “turning a blind eye to inappropriate behavior.”

The current travails at HSBC reflect increasing attention to “soft risks” — such as firm culture and staff misconduct — from bank regulators in the UK and world-wide.  It also demonstrates that an industry-wide over reliance on surveillance and monitoring tools has proven unsuccessful in curtailing non-financial risk.

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