In the aftermath of the global financial crisis, the culture prevalent in the financial sector has received widespread attention. Bank executives and boards, regulators, academics, and the general public have begun to argue for the importance of firm culture, seeing it both to reflect, and to shape, the (mis-) behavior of employees. By extension, one cannot identify, mitigate, or supervise “conduct risk” effectively without paying close attention to the culture of an institution. Such arguments culminate in calls for “culture assessments” and “conduct risk audits.”
During the past few years, regulatory officials across all key banking centers, globally, have proffered a now substantial array of speeches, studies, and recommendations regarding the culture of banks and other financial firms. Collectively, these public resources provide the backbone of this report. While the available information on the “why, what and how” of bank culture reform is prolific, this material exists in a dispersed and unconsolidated fashion.
This “Compendium” aims to provide those working on, or otherwise interested in, this topic with a onestop resource that highlights recent developments in the financial sector on the culture and conduct issue. The goal is to provide a comprehensive summary of the substantive work underway regarding the nexus between firm culture, employee behavior, business performance outcomes, and social consequences.
This Compendium begins by introducing “culture” – why it matters to banks, regulators and to society, and then moves to a summary of the various approaches for assessing and supervising culture today. It will then recount how regulators around the world are seeking to address these matters through a variety of new approaches that are either being implemented currently, or are under close consideration, each with different emphases and enforcement imperatives
A separate report, to be published at a later date, will describe what firms are doing to measure and manage culture and conduct risk, out of their own self-interest, as well as in response to the increased regulatory attention and actions outlined herein.