JPMorgan Fails to Close Gender Pay Gap | Financial Times

According to a piece by Financial Times, JPMorgan has not closed the gender pay gap in their organization. Women employed JPMorgan in the UK earn approximately 26% less than men.

Julia Meazzo, the head of Human Resources at JP Morgan comments. “We have more work to do, not only to increase women’s representation at all levels, but to advance more women into management and leadership positions across the firm. The business is accountable for driving progress and investing in employees’ growth and is committed to expanding advancement opportunities for women.”

As women continue to create their path and take on leadership roles, institutions like JP Morgan have to prioritize this issue. Organizations across the finical sector are seeing the impact of this closing gap and more women in leadership.

The question becomes: is the future of finance female? Click here to read our thoughts.

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Starling Presents in Basel

BIS main building in Basel

Starling was pleased to have had the opportunity to present its thoughts on bank culture and conduct risk management in Basel on March 27th.  Joined by representatives from the Basel Committee for Bank Supervision, the Financial Stability Board, the Financial Stability Institute, and others with the Bank for International Settlements, Starling’s presentation was part of a series of seminars organized by the Committee on Payments and Market Infrastructures.  

The presentation coincided with Starling’s release of the 2019 update to its annual Compendium, detailing regulatory priorities and activities worldwide around the supervision of culture and conduct related risks.  As the report outlines, such risks, and the fallout that follows from risk management failures, has resulted in some $600 billion in fines and costs for the financial industry in the last decade.  As such, these issues are now seen to represent a systemic risk with global implications.

Against the backdrop, it is important that international standard setting bodies are aware of the transformative possibilities represented by new regulatory technologies.  A RegTech pioneer, Starling was grateful for the opportunity to present its Predictive Behavioral Analytics solutions.  These solutions, used by bank leaders to measure, manage, and mitigate a set of non-financial risks that plague firms, are of growing interest to policymakers and architects of the financial regulatory landscape worldwide.

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Why Corporate Culture Is Hard|Columbia Business School

Next week, Starling will issue the 2019 update to our annual Compendium, outlining global regulatory priorities and activities around bank culture and conduct risk management. (Please see our home page for download information)  

In a recent study, Columbia Business School Vice-Dean Shivaram Rajgopal and his collaborators report on an in-depth survey of senior executives, capturing their views on the importance of culture in the corporate space.  More than half of the respondents said that corporate culture is one of the top three drivers of value at their firms, and a full 920 percent also said that improving their culture would increase their company’s value.  Notably, the respondents were CFOs, treasures, and others in roles related to financial function — hard number types — rather than from roles where “soft stuff” like culture typically resides.  (e.g., HR)

Unfortunately, while nearly every respondent said that improving culture would improve firm value, only 16 percent said that their culture was where it should be.  The heart of culture, Professor Rajgopal contends, is in informal elements that are not written down or codified:  specifically, the company’s values and norms.  In order for a culture to be effective, the respondents agreed, the company’s formal institutions have to align with and support these informal elements.  This is a critical point, as usually the attempts to create change happen the other way around.  Check back next week for more on this topic as it applies to the banking sector.

Read the article: Why Corporate Culture Is Hard

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The Conduct Risk Conundrum

Starling Team

Conduct-driven scandals continue to plague the banking sector, despite punitive fines in excess of $345 billion since the Financial Crisis, and attendant public outrage. Extensive regulation has been introduced in an attempt to prompt ethical behavior, and organizations have responded with reactive measures. What is needed instead is a proactive approach to the culture and conduct risk conundrum.

The global impact of misconduct

Misconduct and related scandals have been an unfortunate feature of the financial industry for decades, in every key financial market. Today, however, this challenge is receiving unprecedented attention: from customers, employees, shareholders, regulators, policy-makers, and society more broadly. Consider three prominent recent examples.

Perhaps most poignantly, at present, Australia has just endured a year-long investigation into misconduct among its banks, known as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. To say that the findings were upsetting is an understatement.

As detailed in its Final Report, released on February 1st, misconduct among the Australian banks in recent years has been fairly shocking in both nature and degree: charging fees for no service; plundering the accounts of the dead for “financial advice” and even life insurance (without hint of irony); and more. High profile hearings that preceded the production of the Report have led to public uproar, punitive fines, rolling heads, and a reshaping of the Australian regulatory apparatus.

Events in Australia take place against a backdrop of misconduct scandals in several other major markets. As the Commission’s Report was being released Down Under, in the U.S., the headlines were filled with news that Goldman Sachs might withhold or even claw back millions in remuneration awarded to senior executives, to include former CEO Lloyd Blankfein, following the “1MDB scandal” in Malaysia, which involved alleged fraudulent activity on the part of Goldman employees.

And, at about the same time, in Europe, eight global banks were accused by the EU Commission of collusion in rigging the sovereign bond market. Investigations continue but billions in fines are expected. Again, this comes as a consequence of alleged misconduct that leadership failed to prevent.

Misconduct in the banking and finance sector may not necessarily be a larger issue now than it has been in years past, but today attention to such concern certainly seems to have reached new levels and, more and more so, firm culture is looked to as an explanation.

 

How did we get here?

As former NY Fed president William Dudley has styled it, “Context drives conduct.”

While “tone from the top” may be an important driver of what employees believe to be acceptable behavior, the far larger driver is the behavioral expectation of peers. Tone from the top acts a bit like the speed-limit sign at the side of the highway. How fast one actually drives, however, is largely a function of how quickly the cars around you are moving. Firm culture operates in a similar manner.

The ability to manage conduct successfully therefore turns on an ability to properly understand the underlying cultural drivers of that behavior. As leading network scientist Nicholas Christakis offers in a recently published column, “Dishonesty, proscribed behaviors, and fraud may well spread via processes of social contagion, like all other observed human behaviors. It is not about bad apples; it is about bad barrels. People will behave in a risky manner when they perceive that their peers are doing similarly.”
In the last few years it has become increasingly clear that regulators understand this, and they have begun to call for “culture audits” as a means of proactively anticipating misconduct and, thus, off-setting the risk thereof.

 

The path to better conduct and risk management

If culture is to be managed it must first be made “visible” and actionable.

In a recent speech, the NY Fed’s head of supervision asked how data analytics tools might be helpful in this regard. “The potential of big data analytics to revolutionize approaches in many areas of business has been talked about for years, and is now beginning to become a reality,” he argued, anticipating that “we might see firms routinely leverage broader data to make stronger predictions about potential misconduct risk.”

Computational social science has much to offer us here. It is well established that interpersonal trust and perceived ‘psychological safety’ among employees and managers is key to creating high-performance teams within the workplace. Computational social science techniques allow us to measure and map these interpersonal trust dynamics, sifting signal from company data sets to produce heretofore unavailable insights into the drivers of employee conduct.

RegTech firms like Starling are putting these new computational capabilities to work, building tools that provide management with actionable insights by sifting through massive company data sets to distill “digital artifacts” that point to likely behavior and performance outcomes, with high predictive reliability.

Through such data analytics, company leadership is positioned to engage proactively to anticipate, and shape, culture and the behavioral consequences that impact the organization and its stakeholders.

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Starling Advisor Martin Wheatley on Regtech Trends | Thomson Reuters

Starling Team

Martin Wheatley, former CEO of the UK Financial Conduct Authority and advisor to Starling, recently sat down with Thomson Reuters to discuss current developments in Regtech. Martin brings a unique perspective the space as the former head of one of the most influential financial regulatory bodies in the world.

Now active in the private sector, Martin offers insights into the opportunities offered by new technologies which can help solve long-standing problems in the industry. At the same time, there remain obstacles that slow adoption. Martin goes on to describe how many regulators, including the FCA, have stepped into this environment to set up sandboxes and otherwise to encourage experimentation.

This interview was originally published for Thomson Reuters subscribers on Thomson Reuters Risk Intelligence service.

Read the interview in full here: THE BIG QUESTION: Martin Wheatley, Former CEO, UK FCA

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