OSFI Conducts Risk Assessments on Banks to Crack Down on Misconduct | The Globe and Mail

Starling Team

The Office of the Superintendent of Financial Institutions (OFSI) is surveying banks to understand how corporate culture can create excessive risks for major lenders.

These surveys are being conducted at a time when regulators around the world are cracking down on misconduct. A series of scandals has shaken trust in the practices of global banks.

According to the Global and Mail, OSFI declined to comment on specific financial institutions, but “confirmed its new culture and conduct division is using its risk-culture surveys to collect diagnostic information from banks to assess the linkages between cultural norms and behaviours at financial institutions and the resultant risks they might represent.”

Banking regulators are taking their cues from the Financial Stability Board, an international body that makes recommendations to improve stability of the global financial system.

Last year, Starling estimated last year that risk and compliance costs account for roughly 15-20% of the fixed-cost base at most financial institutions. In case you missed it, you can find Starling’s 2019 Compendium of Culture and Conduct Risk in the Banking Sector here.

Read more

Expand

Measuring Culture – Can It Be Done? | FCA

Starling Team

Researchers from the London School of Economics developed a method that puts corporate culture under the same scrutiny as profit and loss.

One challenge of culture measurement using surveys is that often, people way what they think you want to hear. You also can’t see what’s happening over time. This practice relies on methodologies developed in the 1980s.

So, can culture be measured? Yes, it can. The more challenging question is whether firms, auditors or investment analysts should take on this task or whether legislators and regulators need to take the lead.

It’s great to see such collaborative efforts between regulators and those in academia, which complement the work that is being done by startups in the RegTech community. Further such collaboration will serve everyone’s interests well.

In case you missed it, Starling was one of the eight firms selected to develop testing plans for regulators to consider and approve. Learn more here.

Keep reading

Expand

The One Job in Banking the Robots Can’t Take | Bloomberg

Starling Team

Today, more than 1 in 10 now spend in excess of 10% of their annual budgets on compliance. Banks are eager to find ways to bring this spending down which has lead to buzz that banks are replacing surveillance staff with AI.

Trust in financial services after the 2008 crisis is taking a very long time to rebuild, and so some banks are wary to use new technology. Regulators, frustrated with the slow speed of change, have encouraged banks to deploy more technology. Now, innovative financial institutions, like HSBC and ING, have discovered how AI-powered tools can help them in their efforts to improve risk governance.

Many in compliance functions are looking to AI to help automate routine tasks. For those in risk governance, however, the element of human judgement is irreplaceable. This is particularly so for non-financial risk management.

To evidence the embededness of effective non-financial risk management, firms need to adopt ‘augmented risk intelligence’ tools. Such tools enable risk managers to do more with less. Machine learning tools can spot patterns in standard company data sets that are associated with past risk management failures. The identification of such leading indicators position risk managers to engage proactively. This allows firms to become more timely, efficient and effective in the application of risk management resources. In time, this should produce better risk outcomes, at lower cost.

See more

Expand

ING Takes on Australia’s Big Four Banks in Wake of Scandals | Financial Times

Starling Team

ING is growing rapidly in Australia after expanding its digital-only products and a misconduct inquiry that has tarnished the reputation of rivals. ING is now the fifth-ranked bank in terms of mortgages and customer savings. They reported a net profit after tax of A$401m in 2018, which was a 15% rise from the previous year.

Uday Sareen, ING Australia’s chief executive, tells the Financial Times that over the past 4 years, the bank acquired more than 800,000. This makes their operation one of fastest-growing divisions within the network, which spans to over 30 countries.

“The big drivers of our growth — innovation, advocacy and trust — are more relevant than ever before. I think we are getting good traction from that perspective,” says Mr. Sareen.

Read more

Expand

We’re Only Human: Culture and Change Management | The New York Fed

Starling Team

In a speech posted on Thursday, September 5th, the New York Fed highlighted the technological changes that bring both promise and risk to the development of healthy cultures.

On the topic of culutre and misconduct, this speech includes the following statement:

“Data scientists maintain that network analysis of communication patterns among employees may identify or even predict problem areas within an organization.”

The NY Fed has run a series of conferences on reforming culture and behavior in banking, as part of there culture inititive Starling’s own Stephen Scott spoke at one of these events in June 2019. You can find more information about that here.

Starling’s machine learning/AI tools ingest internal company electronic communications metadata and distill patterns from such data that correlate, with predictive reliability, to specific behaviors of management interest or concern. Such behaviors may revolve around personal accountability, or a cultural context that promotes a readiness to speak-up and offer challenge when ethical or conduct problems are evident, etc. Starling’s “predictive behavioral analytics” software platform enables financial institutions to predict when poor behaviors – or the lack of desired conduct – is likely to impact non-financial risk oversight and outcomes for customers and stakeholders.

See more

Expand