In a recent speech, Klaas Knot, President of De Nederlandsche Bank (DNB), argued that central banks, regulators, and supervisors must attend to their own organizational culture to model what they expect of the firms they oversee.
"[W]e work for organisations that perform a very special public task. Keeping the financial system safe and sound," said Knot, who also serves as the Chair of the Financial Stability Board. "People trust us. If we breach that trust, it not only damages our organisation, it affects the entire financial system."
If regulators are to maintain that trust, Knot explained, they must ensure that their organizations meet the standards they set for regulated firms. "[A]s a supervisory authority we impose all kinds of standards on the financial sector, including ethical ones," he said. "If we do not live up to the standards we impose on others, we lose all authority. This means that we have to set the bar on ethics and compliance in our own organisations very high."
However, this cannot be achieved by merely changing the rules, Knot emphasized. Rather, regulators must cultivate an ethical culture. "I believe that an ethical culture is one where people have a properly developed ethical compass," Knot said. "People who understand that, especially for our types of organisations, the ethical bar is set high." Regulators must also ensure that employees feel safe to speak up when something has gone wrong, he argued.
"To sum up: if we are to live up to the high standards we set for ourselves, we need rules, but first and foremost we need an ethical culture," Knot concluded.
For more from Klaas Knot, read the Closing Comments he contributed to Starling's 2022 Compendium.
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