A Starling Insights Deeper Dive Report

Supervisors on Supervision

— Opening Letter —

Starling’s 2025 Compendium drew an important distinction between things we consider to be merely ‘problematic’ and things we consider to be a real ‘problem.’ To call something problematic is to acknowledge it as troublesome, and yet to accept that we may just have to live with it. But when the problematic hardens into a recognized problem, we demand that it be defined, examined, and solved.

For too long, Starling argued, supervisors have treated organizational culture as problematic — a real but fundamentally unmeasurable concern, responsive only to subjective assessment by managements and supervisors — while at the same time insisting that firms treat culture as a problem, attaching accountability and sanction when leaders of those firms have failed to demonstrate progress towards some typically unspecified solution.

That asymmetry has served neither legitimacy nor stability. And so the task before us is to formalize the assessment of culture within supervision itself: to make it visible, measurable, and actionable as supervisory terrain.

Such a task will require a mix of talents and perspectives that we have heretofore failed to assemble or to equip with the requisite mandate and resources. In Starling’s 2023 Compendium, I argued that the international standard-setting community should take up this challenge. To support progress in that direction, I encouraged Starling to lead a global stocktaking of the supervisory community that would explore several questions:

• Is culture rightly viewed as a matter for supervisors?
• What consequences follow from the status quo?
• What has been tried, and what does that teach us?
• And, finally, what does that collective experience suggest regarding the path forward?

I have long been on record as a skeptic of treating culture as a matter for supervision. My concern was that the topic lacked discipline — resting on impressions that could not be defended in law or made operationally practical.

Culture must move from the margins of rhetoric to the center of credible supervision.

First, it is shifting along with changes in our capabilities. Applied behavioral science can now propose for us rigorous frameworks with which to assess behavioral norms and group dynamics. And advances in artificial intelligence, data science, and social-network analytics offer the possibility of deriving predictive, transparent, and replicable measurements that anticipate organizational performance outcomes. These developments move culture assessment away from rhetoric and closer to sciencebacked evidence, helping both to sharpen and to discipline supervisory judgment.

And second, my view is shifting out of necessity. The exercise of supervisory discretion is under scrutiny — by courts, by politicians, and by the public. In this environment, supervisory judgment cannot rest on instinct, experience, or after-the-fact rationalization. It must be anchored in evidentiary standards that are explainable, proportionate, and replicable. And that will depend on shared frameworks and established measurements that allow us to ‘show our work’ in culture risk governance and supervision.

The global stocktaking summarized here reveals both progress and inertia. Supervisors have experimented with new tools — staff surveys, structured interviews, behavioral diagnostics, culture dashboards — but most of these efforts remain tenuous: pilot-bound, personality-dependent, and marginalized as interesting but not integral. If real progress on this front is to be made possible, the next stage must be institutionalization — turning occasional experiment into routine practice, and sharing what we learn as best practices evolve.

Progress in this direction will depend on conditions of candor within supervisory institutions themselves. Supervisors have urged the firms they oversee to build cultures that protect dissent, reward curiosity, and make truth speakable. If this is good for firms, so too is it good for supervisory agencies; the public sector must demonstrate readiness to take its own medicine.

Finally, this is a global challenge. Fragmentation across jurisdictions creates opportunity for arbitrage, raises costs, and undermines trust. A coherent approach — and I emphasize coherence, not uniformity — is essential. That means establishing a common evidentiary core; one that affords due-process safeguards, so the exercise of supervisory discretion can be explained and compared across borders, while enabling greater horizontal peer review capabilities.

It also means accepting that progress will depend on partnership: supervisors working together with firms, academics, and technologists, through public-private partnership programs; sharing data responsibly; and building the architecture of credible culture supervision before future crisis forces our hands.

If this vision is to be realized, we will need to establish a trusted convenor of ongoing collective action. Here again, I point to the Financial Stability Board as having authority to serve as, or to designate, such a convenor.

We must modernize supervision.

This study offers a full account of the global stocktaking effort and summarizes its implications. Under the guidance of a remarkable leadership and advisory team, it curated the views of dozens of senior figures worldwide. Their consensus is clear: culture must move from the margins of rhetoric to the center of credible supervision, and collaboration is essential if supervisory legitimacy is to be retained and efficacy is to be advanced.

This message is not about expanding power; it is about sustaining legitimacy. Authority for appropriate supervisory oversight will not be preserved by discretion unmoored from evidence. It will be preserved by disciplining supervisory discretion, and by showing that supervisors can act under uncertainty in ways that are fair, explainable, and effective.

This report should be read as a call to action: we must modernize supervision. Doing so will require a shared understanding of culture risk governance and a commitment to define and delimit the problem.

Randal Quarles is Chairman and founder of The Cynosure Group, an alternative asset management and wealth advisory firm. From October of 2017 through October 2021, he was Vice Chairman of the Federal Reserve System, serving as the system’s first Vice Chairman for Supervision, charged with ensuring stability of the financial sector. From December 2018 until December 2021, he also served as the Chairman of the Financial Stability Board, a global body established after the Great Financial Crisis to coordinate international efforts to enhance financial stability.