KPMG Ousts Head of UK Consulting Unit After Conduct Probe | Financial Times

Starling Team

According to the Financial Times, KPMG has forced out the head of one of its core businesses in Britain after an investigation into his conduct involving messages sent on WhatsApp. This dismissal comes as KPMG is working to restore its reputation following a series of unrelated scandals which also involve various allegations of misconduct.

In a statement, KPMG said: “We hold all of our people to a very high standard and take swift and appropriate action against any individual whose behaviour contravenes the firm’s values. As part of this commitment, we can confirm conduct issues have been raised related to a partner and, following an internal investigation and disciplinary panel, that partner has left the firm. Under our process the partner has appealed.”

Misconduct issues are increasingly prevalent in every industry. Consultancies and advisory firms may expect to receive the same kind of scrutiny regarding their cultures as we’ve seen in the banking sector in recent years. As advisors to others who struggle to address the challenges posed by culture and conduct-related risks, KPMG has an opportunity to demonstrate the value of it’s own capabilities in this regard by first being seen to take their own medicine — with demonstrably successful outcomes.

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Socgen’s Chief Culture and Conduct Officer on Cultural Transformation & Trust | Thomson Reuters

Starling Team

Nancy Harrington Jones is the first person at Societe Generale to be named Chief Culture & Conduct Officer. The New York Federal Reserve Bank has convened conference events over the last several years, bringing together bank executives and regulators from across the globe, to discuss needed efforts to reform culture and behavioral tendencies in the banking sector. After participating in those discussions, SocGen decided to create this new non-financial risk management function.Harrington Jones describes her role as leading cultural change in the bank’s approach to governance, risk and compliance, with a shift away from the industry’s typical focus on processes and systems to place more emphasis on people and the dynamics among them.

Two key areas of focus for SocGen are:

“Do we have our environment set up to exhibit the best behaviors?”

“Do employees feel comfortable speaking up without fear or penalty when questionable behavior is observed?”

In this context, Harrington Jones says that she attends most closely to indicators of trust among employees. She is absolutely right to do so. In our own work with global banks seeking to optimize their Three Lines of Defense, this trust element has been demonstrably critical. Peering into those trust dynamics through AI and data analytics tools affords them a real-time gauge by which to judge their success in these optimization efforts. And such tools enable on-the-go course correction when needed.

For Harrington Jones, the biggest indicator of success is, “Finding out about events, situations, or decisions before they blow up, regulators discover them, or the auditors come to us.”

Her awareness of the importance of trust as a key driver of such happy outcomes marks Harrington Jones as particularly insightful — such an awareness is not always found among her peers at other firms. They may benefit by keeping an eye on her.To get more insight on this topic, you can click here to read about Stephen Scott’s presentation at the NY Fed conference.

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Regulatory Trends: Behavioural Science in Culture & Conduct Supervision | Regulation Asia

Starling Team

Regulators are adopting behavioural science tools pioneered by the Dutch central bank in their supervisory efforts, and firms are taking notice, says Stephen Scott at Starling.

Following the early example of the Dutch central bank, many regulators have now created internal behavioural science units, made up of organisational psychologists and others with similar training. Some banks are now following suit, employing behavioural and organisational scientists to assist with non-financial risk management.

The behavioural science approach pioneered by the De Nederlandsche Bank (DNB) makes use of “psychological methodologies and techniques” that support its supervisory efforts. Behavioural scientists from the DNB have been invited to share their experience conducting “deep dive” culture and conduct risk audits with their counterparts in many jurisdictions, and to provide training in their methodologies for regulators in Singapore, Hong Kong and Australia, among many others.

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New Banking Laws Needed to Protect Customers

Starling Team

Financial Markets Authority boss Rob Everett says that: “The governance of conduct risk in the banks requires serious attention.”

Everett was optimistic the that conduct laws would be passed, covering banks and insurers. This would bring them in line with conduct laws that cover other financial services providers including fund managers and financial advisers.

The FCA commented on the core of this issue, stating that “firms are often using their own values to articulate how they bring the conduct rules to life. However, there was insufficient evidence to be confident that firms have clearly mapped the conduct rules to their values.”

Research shows that the way behaviors spread through society is similar to the way diseases move through a population. While it turns out that the factors that encourage the spread of disease are quite different from those that encourage the spread of behaviors, the result is the same.

By understanding the forces that encourage behaviors to spread we can learn to be proactive in our reactions to them. At Starling, we have turned this insight into intuitive tools that managers can use to predict how and where behaviors of interest will spread so they can reduce risk.

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FCA to Focus on Firms’ Implementation of Conduct Rules | Financial Times

Starling Team

On August 5, the Financial Conduct Authority published the findings of its review into the SMCR in the banking sector. It found that organizations weren’t always tailoring their conduct rule training to suit roles within the business.

Many firms were still unable to explain what a conduct breach looked like in the context of their business. As a result, the regulator will be upping its supervision of how companies are enforcing conduct rules and meeting responsibilities under the SMCR.

The regulator commented: “The conduct rules are a critical foundation for firms’ culture and the conduct of individuals. It is essential that staff understand the rules and how they apply to them.”

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