Financial Regulators Susceptible to Culture Risk Too

Starling Team

Following the Great Financial Crisis, many regulators around the world looked to embed their staff within the firms they monitored as a means to gain greater visibility into misconduct. It turns out that this may not have been as effective as first imagined.

While embedded employees do enjoy greater visibility, they are susceptible to the very cultures they are meant to supervise. Once they became part of that culture, they were less able to view the firm objectively and to distinguish between ‘normal’ and inappropriate behavior.

This is yet one more example of how traditional regulatory oversight suffers from significant blindspots unless a firm’s culture is taken into account. Starling predictive behavioral analytics equips firms to monitor culture risk directly to detect where high-risk behaviors may emerge, and where they may spread to next.

Read the article: Regulators Split Over How to Keep Banks Out of Trouble

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Banking Standards Board Releases 2017/2018 Annual Review

Starling Team

“For firms to be able to manage their culture, they must first understand it.”

So writes the head of the UK’s Financial Conduct Authority, remarking on a report released today by the Banking Standards Board. The BSB, which began its work in 2015, exists to help raise standards of behavior and competence across the UK banking sector, to the benefit of customers, clients, the economy and society as a whole. It is a private sector body funded by membership subscriptions and open to all banks and building societies operating in the UK.

This is the second year in which the BSB assessed behavioral and culture at its member firms. One key finding is that “a culture of fear and blame” leaves many employees unwilling to speak up when they witness illegal or unethical behavior. Equally important, though, was a perception that nothing would be done to address their concerns.

At Starling, we recognize that employees are much more likely to speak up and engage with those whom they trust internally. As such, understanding a firms internal “trust network” is an essential step in managing culture and conduct related risk.

Read the Full Review: 2017/2018 Annual Review

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Study: Compliance Programs Need to Incorporate Behavioral Science

Starling Team

Traditional ways of implementing and enforcing compliance programs through training and testing are proving woefully inadequate. In this blog piece by Henry Engler, Senior Editor at Thomson Reuters, reviews a Harvard Business Review study on Why Compliance Programs Fail, and interviews one of the authors.

Many firms rely on their ability to show regulators their training and testing results in order to demonstrate the effectiveness of their compliance programs. And yet, these efforts typically devolve to simple ‘check-the-box’ exercises with little impact on outcomes. What’s needed, concludes the study authors, is to move beyond knowing what is in the code of conduct and figure out how to ‘nudge’ people to do the right thing.

Read the post: Compliance Programs Need to Incorporate Behavioral Science
Read the HBR article: Why Compliance Programs Fail

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Financial Regulators Increase Focus on Culture to Address Misconduct Risk | Paul Weiss

Starling Team

Since the financial crisis, regulators have increasingly focused on banking culture as a means to manage misconduct risk. Despite the lack of a consensus as to what form that should take, at the opening of 2018 the pace of change is, if anything, increasing. Today, regulators around the globe are now actively pressing for new solutions.

In this blog post, Paul Weiss’ Financial Institutions Practice group highlights a number of themes raised by regulators and outlines recommendations for banks to further reform culture and address misconduct risk.

Starling is co-hosting a symposium titled Bank Culture Reform & Behavioral Science with Thompson Reuters on April 9th in NYC that will address these issues. In conjunction with that event, Starling will also be releasing a comprehensive compendium that summarizes regulatory approaches across the world.

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Read the full post: Increasing Regulatory Focus on Reforming Financial Institution Culture and Addressing Employee Misconduct Risk

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The Growing Need for Regtech | Accenture

Starling Team


“We see 2018 as a pivotal year for Regtech

Accenture forecasts increasing investment in Regtech solutions, building on several years of rapid growth. Nimble, fast moving startups will likely continue to face hurdles in working with slower-moving banks but the path will likely get easier as investments in open, API-based technologies start to pay off.

They also argue that regulators will increasingly update and revisit rules with an eye to take advantage of new technologies. Regulators like FINRA have explicitly referenced RegTech in their priorities. Similarly, while speaking at the Singapore Fintech Festival last year, J. Christopher Giancarlo, Chairman of the U.S. CFTC noted, “RegTech poses significant opportunities for those involved in our financial markets, both participants and regulators. I suspect we are in the “early innings” of this space …, but believe that it is imperative for all involved stakeholders to do their part in understanding emerging technologies and think creatively about incorporating such technologies.”

Read the full blog post: The Growing Need for Regtech

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