Shortly before Thanksgiving, the NY Federal Reserve released a detailed summary of its 3rd annual conference on desired reforms to culture and behavior in the financial services sector.  Following high profile congressional hearings on the Wells Fargo scandal, the Fed event attracted more attention and senior level attendees than usual.  We were pleased to be the only technology startup invited to participate.

Four key points emerged:

  • Regulators across the globe are increasingly focused on banking culture as determinate of employee behavior. Regulators stressed the importance of moving beyond the concept of standards of conduct based only on what is legal; instead, the focus should be on what is right.  Bill Dudley from the NY Fed stated that, “behavior establishes the social norms that drive culture.”  Minouche Shafik, Deputy Governor of the Bank of England, commented that “tackling misconduct will require a combination of ‘hard law,’ ‘soft law,’ and better culture.”  Norman Chan from the Hong Kong Monetary Authority summarized that a good culture will prompt the question, “what is the right thing to do?” instead of “can I get away with it?”  Other supervisors noted that cultural weaknesses are central to various misconduct risks.
  • Ultimate responsibility for establishing and maintaining a healthy firm culture lies with the banks themselves. Both regulators and bank executives agreed that firm leaders must actively manage firm culture, and that steady attention is needed.  Culture reform, as one participant put it wryly, should function more as a “lifestyle choice” than a “New Year’s resolution.”
  • Culture and conduct cut across all levels of senior management. Culture and conduct are a concern across the C-suite.  Because “conduct” implies human behavior, and misconduct can trigger existential crises, we are seeing unprecedented levels of formal collaboration between HR and those in governance, risk, compliance and other stewardship functions.
  • New technology provides more effective methods to measure and manage culture. There was broad agreement that measurement is hard, but it can be de-mystified.  While surveys still remain the principal tool in assessing culture, there was a clear recognition that such tools are vulnerable to biases and provide, at best, only a “snap-shot in time” view of the organization.  New tools are called for and one US regulator noted that data analytics technologies and tools may be of particular value in this context.  Another panelist echoed this view, arguing that “Firms may also signal their approach to misconduct risk by the degree to which they make use of the vast information about conduct that is present already within firms.  Are they searching for patterns in past misconduct that may give early indicators of future scandals?”

For more information on this conference and its implications for the future of regulation related to culture and behavior, contact us at info@starlingtrust.com.