FSCA Publishes the Conduct Standard for Banks

Starling Team

The South African Financial Sector Conduct Authority (FSCA) released a set of Banking Conduct Standards on July 8 — a first step in rolling out a comprehensive market-conduct regulatory framework for the country’s financial sector. 

“What the standard will help us with is … to monitor the conduct of banks by ensuring that their customers are central to the development of product, and to the provision of services,” said  Sindiswa Makhubalo, Head of Banks and Payment Providers Supervision.  “This is a first step to what we call the Conduct of Financial Institutions Bill, which we are working on at this present moment.”

The regulator understands that culture plays a key role in ensuring that bank behaviors are in keeping with social interests.  The FSCA’s conduct standards thus aim directly at tying customer outcomes to accountability for related conduct.  Makhubalo went on to say that “In the past, both here in South Africa and even across the globe, we’ve seen customers’ trust in banks being eroded over time. But what this now does, the conduct standards really give the customers a voice.” 

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Hong Kong Posts Breakthrough for Regional ESG Development

Starling Team

Representatives of the Hong Kong government, asset managers, and insurers are pushing for a more coordinated approach to develop the environmental, social, and governance (ESG) framework. On July 8, the Financial Services Development Council issued a report titled Hong Kong – Developing into the Global ESG Investment Hub of Asia

While various ESG-related regulatory initiatives are moving in parallel paths, at present, there is no umbrella entity or program to permit for a coordinated approach to these initiatives. As a result, the report sets out five policy recommendations:

Regulators should work to strengthen oversight of non-financial reporting;
The Insurance Authority should encourage insurers’ disclosure of their ESG policies;
An information-sharing platform should be devised to promote best practices;
The government should provide subsidies to offset ESG training courses; and most importantly
A more coordinated policy environment should be promoted with the development of an ESG policy map.

If Hong Kong is to succeed in creating a viable ESG program across the region, governance, culture, conduct and other operational risks must be prioritized. The Hong Kong Monetary Authority (HKMA) is giving more attention to such non-financial risks in the last year, and shows an increasing interest in regulatory technologies (“regtech”). Moving forward, it will be interesting to see how HKMA priorities are factored into ESG related ambitions.

For more on related themes, please see the HKMA’s contribution to Starling’s 2020 Compendium.

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Driving D&I Through Psychological Safety

Starling Team

Academic literature shows that psychological safety is powerfully correlated with learning and performance in organizations. In general, the higher the uncertainty and need for learning in a given set of tasks, the more so that psychological safety is key to successful achievement of those tasks. This is why psychological safety is a significant factor in predicting team performance.

While diversity can be created through hiring practices, inclusion doesn’t automatically follow.  Psychological safety is about enabling candor and creating an environment where people believe that they can speak up with ideas, questions, concerns, or even mistakes. Such a “speak up culture” plays a critical role in an organization’s ability to leverage its diversity.

Regulators such as the UK’s Financial Conduct Authority and the UK’s Banking Standards Board are paying attention to psychological safety, with both speak up culture and D&I foremost in mind. One recent piece by the FCA points out that “psychological safety is a characteristic of a healthy culture.”  And a BSB survey found that  24% of all employees said that they had wanted to raise a concern at work over the last 12 months. Among those employees who said that they had spoken up about their concern, 42% said that they were listened to and taken seriously, and 40% that they were not.

Simply having a diverse workforce — as evidenced by mere statistics — will guarantee that a diverse team will operate from a sense of belonging.  Leaders who prioritize diversity must also prioritize physiological safety to achieve performance results.

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Corporate Culture Holds the Key to Risk Resilience in Times of Crisis

Starling Team

Ensuring that desired culture is fully embedded throughout a financial institution provides a necessary bulwark to ensure resilience as stress and risk rise, says former New York Federal Reserve president William Dudley.

What financial institutions choose to do during this time of crisis will define them well beyond it.  In the midst of the Covid-19 pandemic, with bank staffs working from home and outside the typical risk control environment that prevails within the office setting, regulatory and reputational risks could result in significant impact long after this crisis ends.  

To address this, financial institutions need to re-engage effectively with their employees, partners, customers and regulators on several levels.  If some on-site monitoring processes are temporarily suspended, off-site risk mitigation options must replace them.  Firms must seek to shutter windows of opportunity for those who might look violate standard policies and procedures in an effort to take compliance shortcuts while no one’s watching.


The First Line of Defense for risk management is meant to be embedded in the customer-facing business units where risks are taken.  Ownership of that risk management responsibility cannot be outsourced to internal risk and compliance teams on the Second Line.  First Line risk owners must identify and rectify weaknesses at an early stage and then seek to leverage the support of Second Line risk and compliance professionals, who are meant to set risk management frameworks, rather than to execute the risk management function.  Setting the right cultural norms along the First Line is critical — especially now.

Companies need to prevent their own crises.  Firms must think about what could go wrong under current circumstances and adjust processes and procedures proactively, before problems arise.  The benefits of investing in culture may not always be visible when times are good.  But when the waters turn turbulent, the returns on a good culture are likely to be especially high.  An ounce of prevention is worth a pound of cure.  

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Third-Party ESG Ratings Too Simplistic, Backwards Looking For Investors, SEC Told

Starling Team

Third-party ratings of companies on ESG (Environmental Social and Governance) standards are too simplistic to be useful for investors, the US Securities and Exchange Commission (SEC) was recently told by officials from AllianceBernstein and Neuberger Berman, at a meeting of the SEC’s Investor Advisory Committee.

Joined also by representatives from State Street Global Advisors and Calvert Research & Management, the group argued that current corporate ESG disclosures lack consistency and standardization, and that the desired standards must work to support investors’ interest in long-term value creation.

Michelle Dunstan, Global ESG Manager at AllianceBernstein, argued that the SEC can take the lead to solve this problem. Whether the SEC will seek to play a role in driving the creation of reliable and consistent ESG standards remains to be seen. It is common for regulators to look to the industry to stand up such solutions. However, regulatory bodies and other public agencies can play an often critical role in helping to overcome “collective action problems.”

SEC Chair Jay Clayton has been vocal recently about a need for greater disclosure around non-financial risks at listed firms — particularly given business challenges posed by Covid — and has issued calls for an exchange of “forward looking information.”

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