Banks’ Remote Working Increases Operational Risks but Could Continue: HK Regulator | Thomson Reuters

Starling Team

According to Ashley Alder, chief executive of Hong Kong’s Securities and Futures Commission, the remote working policies put in place due to the Coronavirus outbreak pose operational risks for financial institutions. During lockdowns, the regulators relaxed rules and allowed staff at financial institutions to work from home. Now, banks and regulators are reviewing the practices that they put in place as they consider returning to work in the office.

“Some of the technology infrastructure isn’t particularly well adapted to working from home… no doubt that there is an increase in operational risk, notwithstanding the fact that it has gone well so far,” said Alder. He also said that regulators may allow these arrangements to continue, even after the pandemic is over. “Working from home, with a degree of flexibility from regulators, went far better than we people would have thought. We do think that many of those operational accommodations may continue.”

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Whistleblower Reports to FCA on ‘Unacceptable’ Workplace Culture Spike in 2019 | Financial News

Starling Team
Whistleblower reports to the Financial Conduct Authority on ‘unacceptable’ workplace culture increased by 35% in 2019. This increase in reports could be due to the growing awareness of unacceptable business practices. “Over the last couple of years, organisational culture has become an increasingly important part of the risk landscape for firms,” consultancy Kroll reports.

Questions regarding ‘fitness and propriety’ — which relates to an individual’s honesty, competence and financial soundness — made up the most commonly reported problem, with 442 such cases. Systems and controls and compliance matters were also common problems, with close to 400 reports each.

“If toxic internal issues hit the headlines, the repercussions on both reputation and the bottom line can be catastrophic. To avoid being associated with such risks, organisations are adding ‘culture checks’ to their corporate due diligence processes,” Kroll observed.

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HKMA Proposes Mandatory Reference Checks to Stop Rolling Bad Apples | Regulation Asia

Starling Team
In a most recent example of a focus on conduct risk in the financial sector, the Hong Kong Monetary Authority (HKMA) issued a new Consultation Paper on the implementation of a Mandatory Reference Checking (MRC) scheme, aimed at addressing the s so-called “rolling bad apples” problem in the banking sector.

The term “bad apples” refers to individuals who engage in misconduct during their employment at a financial institution and may be terminated as a consequence, only obtain employment elsewhere in the industry without disclosing their misconduct to their new employer. “Individuals who are not held accountable for their misconduct at one firm and surface at another firm could have a higher likelihood of repeating their misconduct,” said the HKMA.

Under the MRC scheme, employees would need to disclose 10 years of their employment records. All Authorized Institutions would have to maintain employment records of their employees for at least 10 years. In phase one, this would be confined to the local banking sector.  After one year, feedback would provide the basis for Phase 2 implementation, which will extend to bank employees heading key supporting functions, and employees in client-facing and sales positions.

The HKMA is very likely to continue and even step-up its focus on culture and conduct related risks among the Authorized Institutions it oversees, to include foreign-headquartered firms operating in Hong Kong.  To learn more about the HKMA’s priorities in this context, don’t miss the HKMA’s detailed contribution to Starling’s 2020 Compendium.
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Experts Knew a Pandemic Was Coming. Here’s What They’re Worried About Next | Politico

Starling Team

In its recently released “Domestic Threat Assessment”—a list of significant events that could threaten the United States over the next 30 to 50 years—Politico highlights several predictable challenges. Among them are climate change, nukes, and of course COVID-19 related threats.

But taking second place on the list is the continuing attack on public confidence in our key institutions. Trust in our institutions — including our businesses — is a critical point of vulnerability for us today. “Trust and truth are the foundations of free and open societies,” said Sue Gordon, a career intelligence officer. A lack of these principles can create chaos in organizations and society as a whole.

Firms that fail to guard against an erosion of their trustworthiness will suffer. A prime cause of such trust erosion is internal misconduct and poor culture. Firms need to attend to that immediately by taking steps to understand and manage their culture and conduct risks.

To learn more about our thinking on how these concerns impact the financial sector, please see Starling’s 2020 Compendium.

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UK Regulator Says Coronavirus Is First Test of Post-2008 Banking Rules | Financial Times

Starling Team

According to Britain’s chief financial conduct regulator, the coronavirus pandemic is posing the first serious test of business banking rules that were implemented after the financial crisis.

Chris Woolard, interim chief executive of the Financial Conduct Authority (FCA), said that his office is closely monitoring how banks are managing the rollout of the UK government’s COVID-19 emergency loan scheme.  While most commercial lending takes place “on the other side of the regulatory wall,” Woolard observed that such activity falls under the FCA’s purview none the less. “What is different this time is that the Senior Managers’ Regime allows us to take a view on many parts of a [bank’s] business,” explained Woolard. 

He also said that the FCA would do all it can to prevent any repeat of the banking scandals that took place after the financial crisis, and that it would continue its work in the area of culture in that regard, which has been a priority for the FCA in recent years. “One thing I have said, both inside and outside the FCA, is that I am utterly determined not to see the kind of misconduct we have seen in the past.”

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