The Solution to Australian Bank Crisis? Focus on Culture and Employee Conduct | Accenture

Starling Team

Virtually every corner of the Australian Banking sector has experienced the glare of the Hayne Commission. Formed to investigate alleged misdeeds by bankers, the Commission has since exposed widespread abuse, forcing banks to reevaluate their operations and a new Banking Code of Practice.

In an insightful blog post by Accenture Managing Director San Retna, San argues that banks can address the impact on their firm reputation as well as increased regulatory oversight through an aggressive focus on culture and conduct. Key to this shift, San argues, is to move from exclusively rewarding sales targets and incorporate a greater focus on customer experience. Doing so will both reduce the most aggressive sales tactics while also reinforcing employee compliance with regulations that are designed to protect consumers.

While such a strategy makes sense, it can be very difficult to execute properly. Doing so requires understanding the current cultural and behavioral influencers within the firm and an ability to measure and monitor how these factors change over time in reaction to change initiatives.

This is where tools such as Starling’s AI-powered Predictive Behavioral Analytics platform can help. Our intuitive dashboards reveal the hidden Trust networks that influence conduct and which enable behavior to spread, contagion-like, across a firm. Quantitative metrics empower managers to actively manage firm culture to balance customer experience against profit seeking goals.

Read the full blog post: How Addressing Conduct in Australian Banks Can Kill Two Birds with One Stone

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Understanding root causes of immoral behavior in organisations | Volkswagon

Starling Team

When Volkswagen’s emissions test scandal erupted, it was quite clear that such activity could not have taken place without coordination among many individuals across the organization. While clearly not all would have been directly complicit, it is fair to ask “why did no one speak up?” This challenge is explored in this thoughtful article in the Financial Times by Bernd Irlenbusch, professor of business ethics at the Business School of University of Cologne.

The problem is that most corporate non-financial risk strategies start from the premise that employees are rational. With this assumption, managers can rely on employee engagement surveys and corporate ethics policies in order to manage conduct risk. As the author argues, this is simply not the case. Elements such as intuition, emotion, and biases have a powerful influence on behavior.

Research shows, in fact, that over time, employees will adapt their ethical and moral compass to match that of their environment. Our own experience at Starling has shown that employees are highly influenced by their peers – particularly those peers whom they trust most deeply. The result is that employees can become desensitized to unethical behavior – particularly when their peers actively exhibit such behavior. These biases are only amplified when outside pressures come into play. “Research shows that moral biases … are moderated by situational factors such as time pressure, monetary incentive structures, the influence of a leader and social norms that shape the corporate culture.”

Given that employees can not be relied upon to act rationally and behavior is clearly social in nature, Starling has developed tools that allow managers to identify behaviors and predict how they are likely to spread, contagion-like through their firms. Armed with this information, managers can identify where potential risks are most likely to occur and develop targeted solutions to mitigate the imact.

Read the article here (paywall): Volkswagen and the moral business behaviour lessons

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Rebuilding trust requires banks to internalize responsibility and accountability | Andrew Bailey

Starling Team

Don’t miss this speech, “Trust and ethics: a regulators perspective,” delivered by Andrew Bailey, head of the UK’s Financial Conduct Authority. Building on his past insightful comments about the importance of culture in the financial services sector, Bailey focuses on trust — discussing how to it has broken down since the global financial crisis and how it may be regained.

“Trustworthiness demands two things: knowledge and skill; and good intentions and honesty. And, both necessary elements of trustworthiness need to be demonstrated … trust depends on solving the conundrum that there isn’t an independent source to prove honesty and good intent.”

For regulators, Bailey points out, that means looking at whether individuals in financial institutions, especially senior managers, act in ways that engender trust: with employees, shareholders, and society more broadly.

At Starling, we have always focused on the centrality of trust in an organization. Understanding the trust relationships among individuals is key to understanding their behaviors — how they will act, from whom they will take their behavioral cues, and whom they will influence in turn. Risk and performance optimization depend on those relationships.

Read the article: Trust and Ethics – a Regulator’s Perspective

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Culture Reform in Finance Requires Advances in Assessment, Technology, and Influence | Kevin Stiroh

Starling Team

Regulators around the world have realized the importance of addressing culture reform in banking. Despite the challenges inherent in managing culture, leading voices in the regulatory community are laying out the groundwork for how this might work.

One of these leaders, Kevin Stiroh, head of supervision at the NY Federal Reserve Bank, recently gave a talk titled, “The Complexity of Culture Reform in Finance.” Stiroh pointed out that culture and conduct are complex problems, in that they are marked by interconnectedness of a large number of factors, constant evolution, feedback loops, and “known unknowns.” His concludes that there must be a long term, sustained commitment to make a difference, and that we must deploy a wide range of tools.

He notes that regulators and industry have made significant progress in addressing the issues, but that more work is needed in three major areas: assessment, technology, and influence. Besides acknowledging the benefits of big data and standardized metrics, he challenges stakeholders to “leverage insights from the social sciences to promote environments that foster healthy group behavioral patterns with better decision making.

At Starling, we are now working with banks around the globe to bring AI-driven diagnostic tools to the market to address these gaps. Along the way we are engaging regulators worldwide to align our products with these reform initiatives.

Read the speech: The Complexity of Culture Reform in Finance

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Starling educating the Hong Kong banking industry on use of AI for bank governance and supervision

Starling Team

Regulators are asking critical questions as the phenomenal pace of advances in RegTech continues. As firms and regulators adopt more AI-based tools, it is clear that more attention will need to be placed on the topic of transparency. This article from the South China Morning Post describes how regulators are focusing on these types of questions as the technology begins to enter the mainstream. As AI-based take on more decisions in the bank, there will be many cases where it will be critical for bankers and regulators to understand how that decision was made.

Starling has long recognized that as AI becomes integrated into Fintech and Regtech applications it will be critical to work closely with regulators to educate and share real world experiences. It is for this reason that Starling has actively cultivated relationships with regulators across the globe.

In the spirit of education, Starling has been invited by the Hong Kong Montetary Authority (HKMA) to speak at a seminar this coming November on the subject of AI applications in Risk Management and Performance Optimisation. Starling’s Founder and CEO, Stephen Scott, will be joined by Mirea Raaijmakers, the Global Head of Behavioral Risk at ING to speak about practical examples of the application of behavioral science and RegTech tools in the context of improving bank governance and supervision.

We hope to see you there!

Read Starling’s Event Announcement: Harnessing Behavioural Science and AI for Risk Management and Performance Optimisation

Read the article: HKMA’s ‘regtech’ push raises transparency concerns at financial institutions

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