Korea’s SFC to Prompt AI Adoption in Financial Sector

Starling Team
Korean regulators are racing against Asian neighbors in the active development of a Regtech and Suptech ecosystem that works to draw innovation dynamism — and new tech jobs — to the nation.

South Korea’s FSC (Financial Services Commission) held a meeting with a new Working Group on July 16. The Group is tasked with the promotion of AI adoption in financial services is part of the government’s KRW 114 trillion ‘New Deal’ policy initiative.  The creation of related new jobs in the tech sector is seen as a post-coronavirus growth engine.

During the meeting, participants discussed trends and policies surrounding AI in financial services. “AI technology can help improve the effectiveness, inclusiveness and accountability while lowering costs in providing financial services,” the FSC said. The Working Group will seek ways to improve upon regulations that may hamper the ability of financial firms to develop or adopt AI-based solutions.

A Regtech & Suptech Sub-Group has been tasked with reviewing ways to apply AI towards boosting the effectiveness of regulatory compliance and financial supervision. In the coming months, the group will determine what measures will be taken to support these goals.  

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US FDIC Names Five New Members to Its Systemic Resolution Advisory Committee

Starling Team

We are delighted to note that Starling advisor, Gary Cohn, has been named to the Systemic Resolution Advisory Committee (SRAC) of the US Federal Deposit Insurance Corporation.  (FDIC)  The SRAC was created by the FDIC’s Board of Directors in 2011, under authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  The Committee is tasked with providing advice and recommendations on a broad range of issues regarding the resolution of systemically important financial companies.

Cohn, past President & COO of Goldman Sachs and Assistant to the President for Economic Policy and Director of the National Economic Council in the White House, joins new Committee members:

  • Dr. Ben S. Bernanke, Distinguished Fellow in residence with the Economic Studies Program at the Brookings Institution, Former Chairman of the Board of Governors of the Federal Reserve System;
  • Hon. Robert Drain, United States Bankruptcy Judge, Southern District of New York;
  • Timothy J. Mayopoulos, President of Blend, Former President and Chief Executive Officer of Fannie Mae; and
  • Sandie O’Connor, Former Chief Regulatory Affairs Officer for JPMorgan Chase & Co.

“The FDIC is fortunate to have these distinguished individuals join this Advisory Committee. Their collective knowledge will be a tremendously valuable resource for us to draw on,” said FDIC Chairman Jelena McWilliams.


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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