Compliance Training Failing to Deliver Meaningful Outcomes | Regulation Asia

Starling Team

According to Regulation Asia, 1.06 trillion USD has been wiped out in the banking industry in the last ten years as a result of poor risk culture.

Now, most banks focus on their risk and compliance frameworks across the ‘three lines of defence’ and much of the attention goes to the first line – the business units. As firms drive greater individual ownership and accountability, there’s movement from rule-based to value-based behaviour.

In 2018, the industry spent an estimated 10 billion a year on compliance training. The report finds that employees don’t take this training seriously due to a lack of repercussions for ignoring or failing training modules.

Starling’s augmented management intelligence and 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. This new breed of ‘CultureTech’ has the potential to save the industry billions per year in misconduct-related penalties.

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MIT Professor Thomas W. Malone Joins Starling Advisory Board

Starling Team

Starling, an applied behavioral sciences technology company in the “regtech” space, has announced the appointment of MIT’s Thomas W. Malone to its distinguished academic advisory board.

Professor Malone is the Patrick J. McGovern Professor of Management at the MIT Sloan School of Management and founding director of the MIT Center for Collective Intelligence. He is also a Professor of Information Technology, of Work and Organizational Studies, and was a founding co-director of the MIT Initiative on “Inventing the Organizations of the 21st Century.” In 2004, Professor Malone summarized decades of his research in the critically acclaimed book, The Future of Work and, in 2018, he did so again in his newest book, Superminds.

“I’m delighted to have Tom with us,” said Starling founder and CEO Stephen Scott. “Tom is a true pioneer in showing how the marriage of ‘Man and Machine’ works to produce a collective intelligence – one that can be harnessed to transform performance management among firms. This includes the way firms manage non-financial risks, such as those that tie to culture and conduct. Tom’s long history of leadership in this new science will be of tremendous value to us at Starling, and to our customers in the financial sector.”

Click here to access the full press release.


OSFI Conducts Risk Assessments on Banks to Crack Down on Misconduct | The Globe and Mail

Starling Team

The Office of the Superintendent of Financial Institutions (OFSI) is surveying banks to understand how corporate culture can create excessive risks for major lenders.

These surveys are being conducted at a time when regulators around the world are cracking down on misconduct. A series of scandals has shaken trust in the practices of global banks.

According to the Global and Mail, OSFI declined to comment on specific financial institutions, but “confirmed its new culture and conduct division is using its risk-culture surveys to collect diagnostic information from banks to assess the linkages between cultural norms and behaviours at financial institutions and the resultant risks they might represent.”

Banking regulators are taking their cues from the Financial Stability Board, an international body that makes recommendations to improve stability of the global financial system.

Last year, Starling estimated last year that risk and compliance costs account for roughly 15-20% of the fixed-cost base at most financial institutions. In case you missed it, you can find Starling’s 2019 Compendium of Culture and Conduct Risk in the Banking Sector here.

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Measuring Culture – Can It Be Done? | FCA

Starling Team

Researchers from the London School of Economics developed a method that puts corporate culture under the same scrutiny as profit and loss.

One challenge of culture measurement using surveys is that often, people way what they think you want to hear. You also can’t see what’s happening over time. This practice relies on methodologies developed in the 1980s.

So, can culture be measured? Yes, it can. The more challenging question is whether firms, auditors or investment analysts should take on this task or whether legislators and regulators need to take the lead.

It’s great to see such collaborative efforts between regulators and those in academia, which complement the work that is being done by startups in the RegTech community. Further such collaboration will serve everyone’s interests well.

In case you missed it, Starling was one of the eight firms selected to develop testing plans for regulators to consider and approve. Learn more here.

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The One Job in Banking the Robots Can’t Take | Bloomberg

Starling Team

Today, more than 1 in 10 now spend in excess of 10% of their annual budgets on compliance. Banks are eager to find ways to bring this spending down which has lead to buzz that banks are replacing surveillance staff with AI.

Trust in financial services after the 2008 crisis is taking a very long time to rebuild, and so some banks are wary to use new technology. Regulators, frustrated with the slow speed of change, have encouraged banks to deploy more technology. Now, innovative financial institutions, like HSBC and ING, have discovered how AI-powered tools can help them in their efforts to improve risk governance.

Many in compliance functions are looking to AI to help automate routine tasks. For those in risk governance, however, the element of human judgement is irreplaceable. This is particularly so for non-financial risk management.

To evidence the embededness of effective non-financial risk management, firms need to adopt ‘augmented risk intelligence’ tools. Such tools enable risk managers to do more with less. Machine learning tools can spot patterns in standard company data sets that are associated with past risk management failures. The identification of such leading indicators position risk managers to engage proactively. This allows firms to become more timely, efficient and effective in the application of risk management resources. In time, this should produce better risk outcomes, at lower cost.

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