Bank Culture in 2020 – Regulatory Expectations and Developments in Hong Kong and Singapore

Starling Team

In 2020, regulators in Hong Kong and Singapore continue to strengthen their focus on culture and conduct initiatives.

Both the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) have made clear their view that creating and sustaining a culture that promotes good customer and social outcomes should be viewed as a compliance requirement, not just some ‘nice to have’. Both regulators have launched initiatives aimed at developing insight into how the financial institutions under their jurisdiction are working to manage culture and conduct issues amidst the Covid-19 pandemic.

Financial institutions are now expected to monitor global incidents of risk management failures, anticipate and prevent employee misconduct, ensure the firm’s culture and conduct framework is sustainable, and to promote culture efforts across the firm’s global footprint. With the pandemic requiring most firms to alter their mode of operations, including remote working becoming the norm, it’s important for firms to assess whether this has impacted their culture and conduct risk management capabilities.

In March 2017, the HKMA launched a bank culture reform by promoting the adoption of a ‘holistic and effective framework’ for promoting sound culture in banks. More recently, it has emphasized the role of regtech in connection with risk management efforts. MAS has also acknowledged that culture is a key driver of conduct, describing culture as the “shared values, attributes, behavior and norms in an organization” that is driven by “both the ‘hardware’ (e.g. policies and processes) and ‘software’ (e.g. beliefs and values) in an organization.”

In this, the HKMA and MAS are expanding on global regulatory trends that focus on culture and conduct risk governance as key supervisory priorities that warrant c-suite and board-level attention.

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JPMorgan Faces Possible Fine Related to Internal Controls

Starling Team
A JPMorgan Chase & Co. subsidiary is facing a potential regulatory fine over poor internal risk controls. The potential fine was related to issues with “internal controls and internal audit over certain advisory and other activities.”

The subsidiary facing the fine is primarily regulated by the Office of the Comptroller of the Currency. In recent years, The OCC has focused on internal-control weaknesses at banks and has taken them to task for the length of time they take to fix the weaknesses.

Last month, Citigroup was ordered by the Federal Reserve and the OCC to revamp its risk-management processes, the systems inside a bank designed to detect problematic transactions, risky trades, and anything else that could harm the bank. The order included a $400 million fine from OCC. Dealing with the order is expected to be a costly and long process for Citigroup.

The OCC also fined USAA Federal Savings Bank $85 million last month for allegedly failing to maintain effective compliance-risk-management and information-technology risk-governance programs. This trend of regulatory fines is likely to continue and to avoid these costs, organizations must take steps to improve their processes and manage risk. 

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North American Banks Pay High Price for Governance Failings

Starling Team

Broadening public awareness has made ESG topics relevant for banks, and is expected to be increasingly relevant in the context of risk management policies and compliance procedures of North American banks, according to Fitch Ratings.

While governance has always been relevant to bank ratings, environmental and social issues will increase in importance over time as regulators, investors, customers, and other ESG-minded stakeholders increase their focus on banks’ attitudes and policies. 

In just the last months, JPMorgan, CapitalOne, Citigroup, Goldman Sachs, Wells Fargo, and the U.S. operations of Deutsche Bank have all faced enforcement actions and substantial punitive fines in response to weaknesses in risk governance.  Lapses in oversight and controls will continue to be costly, as policymakers are taking a tougher line with the industry and have shown a low tolerance for repeated misconduct.

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Australian Productivity Commission Releases RegTech Information Paper

Starling Team

The Australian Productivity Commission recently released an information paper intended to promote consideration of opportunities to improve regulatory administration and compliance through technology.

The report observes that leading‑edge regtech involves the use of data for predictive analytics and real-time monitoring of risk governance, enabling better regulatory outcomes and potentially fewer compliance burdens for businesses. The paper lists four key areas where regtech solutions may be particularly beneficial:

  • Where regulatory environments are particularly complex to navigate and monitor;
  • Where there is scope to improve risk‑based regulatory approaches, thereby targeting the compliance burden and regulator efforts;
  • Where technology can enable better monitoring, including by overcoming constraints related to physical presence during Covid Work-from-Home protocols; and
  • Where technology can safely unlock more uses of data for regulatory compliance.

But advanced regtech requires specialized resources and long development times. Creating and maintaining a regulatory environment that supports the realization of regtech benefits requires familiarity with the possibilities of regtech, facilitating collaboration between regulators, regulated entities, and regtech developers, and establishing safe environments to develop and test regtech solutions.

Read the full paper here

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A Government Agency Just Paid a Record $114 Million to an Anonymous Whistleblower

Starling Team
More than doubling any previous whistleblower award record, the US Securities and Exchange Commission (SEC) has awarded $114 million to a whistleblower who provided the government with reliable information regarding corporate misconduct, and “extraordinary” assistance in an investigation into those misdeeds. 

“I hope this record-breaking award encourages others with information about possible securities laws violations to step forward,” Jane Norberg, head of the SEC’s whistleblower office told CNN Business in an exclusive interview.

The award intends to serve as a warning to Corporate America. “One big lesson from this award is that companies should take reports from whistleblowers seriously,” Norberg said. “Because it is likely that the SEC already has the information, or will shortly thereafter. And we will follow up on it.” 

The path trod by this whistleblower is common one, Norberg said — reporting internally before going to the authorities when no corrective action was taken.  “People just get frustrated,” she added. “They become quite disenchanted and that’s when they come to the SEC.”

The SEC handed out 39 individual whistleblower awards totaling about $175 million during the fiscal year that ended in September. That’s more than in any year since the agency’s whistleblower office launched in 2011. And the SEC received a record number of tips last year about potential wrongdoing.

“Improving the whistleblower program has been a priority for me since I arrived at the Commission,” SEC Chair Jay Clayton told CNN Business in 2017. “By adding efficiency and transparency to the program, we have made more awards and awarded more money in the last three years than in any time period in the program’s history.”

In an era when even the most routine government agencies are politicized, the whistleblower program has survived countless efforts to gut it, but its success in uncovering fraud plays a key role in managing conduct risk.

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