Only Connect: Reinventing Organizational Culture in the Covid Era

We are very pleased to see this important piece, with the NY Fed’s Jim Hennessy as a contributing author. The NY Fed has played a critical role in raising awareness around the importance of culture as a key driver of performance outcomes among firms. We are grateful to Jim for his significant contribution to our 2020 Compendium in which he offers detail on the NY Fed’s related activities and priorities.

Here, Jim and his co-authors note that while attention to corporate culture is always important, it has been made still more so given the impacts of the COVID-19 crisis. The question many organizations are asking is: What kind of organizational culture do we want and how to we foster it in a work-from-home context?

The pivotal word that helps organizations to address these challenges is trust. Mutual trust is a key contributor to team performance. That is, in large part, because fully productive collaboration is only possible when people really know and trust each other. Effort to reinforce desired company culture during current circumstances must take this as their starting point.

Leaders must work to help their remote workers to achieve new forms of peer-socialization — and they should be aware how such is occurring at the prompting of employees themselves. Shared experiences can often help to create bonds of trust. This should not be left to happenstance: the firms that prosper during and after the Covid-crisis will make culture a priority.

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How Chief Risk Officers Can Add Value in a Crisis

Starling Team
CROs are used to managing crises, but the Covid-pandemic has pushed everyone into uncharted territory.

Crisis management is reactive.  Good risk management is proactive.  When leaders react to crisis, in the moment, there is often little time to assess the impact of decisions and actions.  This may create additional risks.  

An ability to articulate the thoughtful and proactive risk-informed process that management followed in formulating any crisis response could also pay significant dividends into the future. Alternatively, if leadership teams are focused only on addressing immediate organizational stresses, they may be confronted with challenges that will later lead to different kinds of crisis. 

This post from Risk Management Magazine describes key actions that CROs should consider:

Demonstrate to senior leaders how a proactive risk-management lens can be an invaluable component to crisis response.

Commit to assessing enterprise-level crisis response decisions for collateral consequences across all risk types, including reputational risk.

Provide feedback to crisis response teams on potential risks their real-time decisions are creating, as well as potential mitigations that might limit these exposures.

To avoid another kind of crisis when [normal operations resume], someone should be … anticipating likely scenarios, and developing risk responses that can be deployed in a proactive rather than reactive way.

We believe that Predictive Behavioral Analytics can play a critical role in this context.  By bringing quantitative and data-driven metrics to qualitative management challenges, such tools position CROs to operate in a more timely, efficient and effective manner — proactively.  Click here to learn more.

Culture Audits: Removing the Blindfold

Starling Team

Leaders along all Three Lines of Defence are being held personally accountable for misconduct that takes place on their watch. To avoid individual liability, they must identify leading indicators of risk that allow for “upstream” interventions, say Starling’s Stephen Scott and former HSBC Global Head of Operational Risk and ORX Chairman, Mark Cooke.

Now, culture audit requirements continue to develop as part of the strategy to manage culture and misconduct risk. Organizations across the globe are now seeing the value in auditing and evaluating their corporate culture to manage risk. This is even more important as we continue to adapt to the “new normal”.

The economic crisis caused by the Covid-19 pandemic has placed extraordinary demands upon banks worldwide. Necessary work-from-home orders have effectively eviscerated banks’ ‘First Line of Defence,’ while regulators have suspended many of their usual supervisory activities. In this, the pandemic has served to highlight the industry’s Achilles Heel: poor nonfinancial risk management and, particularly, the management of misconduct risk.

An absence of evidence is not evidence of absence. Banks are increasingly expected to develop leading indicators of risk to permit proactive mitigation efforts. Regtech companies are bringing such capabilities to market and leading institutions will be early adopters.  Different Asian financial centers appear now to be vying to host the heart of the region’s Regtech ecosystem, with the innovation and jobs such a move may represent.

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MAS Proposes New Powers to Enhance Effectiveness in Addressing Financial Sector-Wide Risks

Starling Team

The Monetary Authority of Singapore (MAS) issued a consultation paper on July 21 proposing ways to deal with risks that can undermine the financial sector. The proposed new Act for financial services and markets would consolidate similar provisions for various classes of financial institutions. The new Act will also include additional powers to prohibit unsuitable individuals from working in the financial industry,

The details of the proposed provisions are:

a) To preserve trust and deter misconduct in Singapore’s financial sector, MAS proposes to expand its power to issue prohibition orders (POs). This proposal will broaden the categories of persons who may be subject to POs, rationalise the grounds for issuing POs (from a list of specific criteria into a single fit and proper test) and widen the scope of prohibition.

The new powers will enable MAS to holistically assess whether a person’s misconduct renders him unsuitable to perform one or more roles or activities within the financial sector and the appropriate action that should be taken under the PO powers. In exercising this power, MAS will adopt a risk-proportionate approach, taking into account the nature, severity and impact of the misconduct.

b) MAS also proposes to license and regulate, for  AML/CFT purposes, any person in Singapore who provides digital token services overseas. The provisions in the new Act will expand the scope of existing legislation , which already regulates most of the digital token services provided in Singapore. The provisions will align Singapore’s regulatory regime with the enhanced standards adopted by the Financial Action Task Force (FATF) for virtual asset (“digital token” in Singapore’s context) service providers [4] .

c) Recognising the pervasive use of technology and the growing sophistication of cyber threats, MAS proposes to harmonise and expand its existing powers to impose requirements pertaining to technology risk management, including cyber security risks and data protection, on all regulated financial institutions . MAS also proposes to increase the maximum penalty to $1 million for any contravention of these requirements.

d) MAS also proposes to provide statutory protection to persons performing the duties of an approved dispute resolution scheme operator (e.g. mediators, adjudicators and employees of the Financial Industry Disputes Resolution Centre (FIDReC)). This will strengthen their confidence to act independently in resolving consumers’ disputes with financial institutions.

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UK Financial Conduct Authority Issues Conduct Risk Warning

Starling Team

The UK’s Financial Conduct Authority (FCA) has warned that, despite delays to the implementation of the Senior Managers and Certification Regime, it will still take action against senior managers and certified persons for misconduct during the coronavirus pandemic.

In a Consultation Paper published on July 17, the regulator said firms would still be held accountable under its rules. It follows a move earlier this month when the FCA delayed the deadline for solo-regulated firms to have completed their first “fitness and propriety” assessment until March 31, 2021.

Jonathan Davidson, Executive Director of Supervision (Retail and Authorisations) at the FCA, said the regulator expects firms to use this extra time to implement certification and conduct rules to the highest standards. “These proposed changes recognise the exceptional stress placed on financial services firms by the Covid-19 pandemic and the importance for firms to fully and properly implement the certification regime and to train staff effectively in the conduct rules,” he commented.

While the FCA expects that most firms will be able to meet the original deadline, they hope to encourage all firms to embrace these conduct rules and create lasting change. Respondents have until August 14 to comment on the consultation.

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