Australian governance taskforce seeks to promote bank culture reform

Starling Team

“A company’s culture often shapes its approach to corporate governance and its response to its regulatory obligations, and it drives conduct within the firm,” argued John Price, Commissioner of the Australian Securities and Investments Commission (ASIC), in a speech this week. “And that can be either good or bad conduct. This is why culture matters to ASIC.”

ASIC has made improving governance and accountability at the firms it supervises a key strategic priority. In this direction, the regulator has formed a corporate governance taskforce to conduct targeted reviews of the practices of the firms it oversees. “We have an important role in promoting an ethical culture in business and an ethical approach to business decision-making,” Price said, outlining several measures that ASIC will undertake in order to help drive bank culture reform:

  • Reviewing and reporting on industry practices and approaches to corporate governance;
  • Identifying and addressing significant harm to consumers, investors and markets;
  • Accelerating enforcement outcomes where there is a need for general or specific deterrence for poor conduct;
  • Implementing new approaches to supervise regulated entities; and
  • Promoting the adoption of regulatory technology (“RegTech”) by business.

 
“At the heart of the work of the corporate governance taskforce is a desire to build understanding and improve current corporate governance practices that can support changes towards a more ethical culture in business decision-making and so enhance trust in our financial system,” Price concluded.

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Almost Half Of America’s Banks Have Less Than Satisfactory Federal Reserve Supervisory Ratings | Forbes

Starling Team
On November 26th, the Board of Governors of the Federal Reserve System published its second annual ‘Supervision and Regulation Report.’  It shows that 45% of U.S. banks with more than $100 billion in assets have less than satisfactory supervisory ratings. 
 
According to the report, large financial institutions continue to remediate a significant number of adverse supervisory findings — matters requiring attention (MRAs) or matters requiring immediate attention (MRIAs).  But while it notes that the number of outstanding supervisory findings has decreased over the past year, the report doesn’t provide details on what these findings entail, which banks have supervisory problems, or how these challenges are being addressed.

Importantly, the report notes that “large financial institutions are in sound financial condition, although nonfinancial weaknesses remain.”  Across the globe, banks and other financial institutions struggle to manage non-financial risk successfully, regularly resulting in reputational damage, stock price impairment, regulatory enforcement action and career-ending punitive fines.  

There is a marked paucity of reliable metrics that successfully anticipate the appearance of these material risks.  This has poor consequences for risk governance, internally, and for forward-oriented supervision, externally.  It would therefore be helpful to have more meaningful insight into trends regarding: (1) the prevalence of non-financial risk across the financial system, (2) the form in which such risks most often manifest, and (3) the successful remediation of these risks.  We hope the Board of Governors will address these themes in future reports.

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Starling Recognized by Two Leading Regtech Research Firms for Its Innovative Approach to Culture and Conduct Risk Management

Starling Team

In November, Starling was recognized by two leading Regtech firms for it’s innovative solution to the challenge of culture and conduct risk management.  Some of the largest banks and financial institutions in the world look to Starling’s Predictive Behavioral Analytics tools in order to assess misconduct risk proactively, to improve the efficiency of investigations and risk audits, and to demonstrate improved non-financial risk management to their boards, investors, and regulatory supervisors

For the second year running, Starling was named to the RegTech 100 list by RegTech Analyst, a specialist research firm.  This year’s process to identify the leading 100 companies in the sector attracted the most entries to date.  A panel of analysts and industry experts voted from a list of over 1,000 companies. Fifty-three new companies entered the RegTech100 for 2020 and the finalists were recognized for their innovative use of technology to solve a significant industry problem, or to generate cost savings or efficiency improvements across the compliance function.  A full list of the RegTech 100 is available at www.RegTech100.com

Also, Starling received the Award for Best Solution in the Culture & Conduct Risk Management category at the annual Regulation Asia Awards for Excellence ceremony on November 13th. This category recognises solutions that are designed with specific regulatory requirements in mind, assessed on multiple criteria, including the ease and speed of implementation, flexibility, robustness, scalability, transparency, technical support, cost and return on investment for end clients.

Regulation Asia received over 100 submissions – twice that of 2018 – and the Regulation Asia Awards for Excellence increasingly become a sought-after industry recognition in the regulatory and compliance space.  An external panel of 10 judges – comprising subject-matter experts from banks, associations, law firms, consulting firms – was tasked with deciding the winners in each category.

The review panel conducted interviews with the shortlisted firms and, in some cases, their clients, in order to obtain a more detailed picture of the strengths and weaknesses of each firm and draw clear comparisons across entrants.  Judges made their decisions independently. 

About Starling

Starling is an applied behavioral sciences company using machine learning and network science to build what it calls “augmented management intelligence” tools. Its predictive behavioral analytics technology reveals the performance impact of relational trust dynamics within organizations. Based on this data, Starling’s proprietary algorithms generate actionable insights, displayed through intuitive and customizable dashboards, enabling business leaders to drive improved performance and desired culture – and to identify and mitigate behavior-related risks before they cascade into crises.

About RegTech Analyst and the Regtech 100

The RegTech Analyst platform offers business intelligence on the RegTech, risk management tech and cybersecurity sectors. RegTech Analyst is the pre-eminent provider of data, research and analysis on the global RegTech market. RegTech Analyst covers every trend, every investment and profiles every company that provides a technology solution for compliance, risk management or cybersecurity delivering essential intelligence for mission-critical business decisions.   For more information, please visit:  www.RegTechAnalyst.com

About Regulation Asia

Regulation Asia is the leading source for actionable regulatory intelligence for Asia Pacific markets. Since 2013, their audience and subscription base has grown to include regulatory bodies, exchanges, banks, asset managers and service providers, allowing them to play a key role in the regulatory agenda.

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HSBC Warned Twice by Bank of England on Conduct Risk Control | Bloomberg

Starling Team
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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Why Banks’ Top Brass Should Welcome Tougher Regulation | The Irish Times

Starling Team

A piece by The Irish Times explains that too, some, culture sounds soft; like “happy clappy” and “motherhood and apple pie” but it isn’t.

A good internal culture is what makes your business an employer of choice. It impacts customer interaction and builds loyalty. It also lowers the risk, and cost of doing business. So, Improving culture is best for everyone, from the customers to the owners of banks.

Still, trust in Irish banking is low and this issue isn’t unique to Ireland. It’s a global concern. “This is why I would embrace legislation that promotes individual accountability and makes it easier for regulators to fine, reprimand or disqualify senior bankers who create detriment and damage as a result of their poor values and bad decisions. These failures should result in bankers being held to account in a clear and transparent way,” says Francesca McDonagh, group CEO of Bank of Ireland

To be sustainable in the long term, banking has to change. One step in the right direction is enhancing individual accountability.

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