Supervisors on Supervision

“Culture and conduct reform, in my view, is an ongoing process. We put so much effort into building a sustainability-oriented culture after the Financial Crisis because it is the only answer to ensuring the right conduct. And it was expected from the other side of the table — from the regulators.

And this is also important in connection with the G in ESG. Governance issues will become dominant for listed companies globally. They will be judged on the G part as much as they’re judged on the E part and the S part. I’m convinced that we need a permanent culture change in banking, and across corporations more generally.”

“A lot of internal investigations take place because things go wrong. Often this leads to establishing a ‘culture of compliance,’ from the second and third lines rather than making sure that the first line adopts a culture that prioritizes the delivery of good quality outcomes for clients.

As a former regulator, I’ve regularly observed that one does not notice a good culture, per se. What you notice is a lack thereof at a firm. I think many firms that don’t have a clear culture, around which they evolve their business, sooner or later find themselves facing problems. That lack of focus on desired culture means that such firms have a higher idiosyncratic risk of misbehavior, reflected in the attitude ‘it’s allowed if it’s not explicitly forbidden.’ Well, not everything that is not explicitly forbidden is allowed, and even more to the point, even what may be allowed is not always in the interest of clients.”

“Culture is not an issue for the HR department alone. I look at HR as also having an audit role — sort of postmortem. If things pop up in the HR department, that’s because there is a lack of proper culture which has manifested itself in client complaints, regulatory complaints or legal cases. 

There must be holistic alignment within the first line in how they do business, as well as checks and controls. And not because they fear being caught out by the compliance or risk teams, but because they are focused on the best interests of clients.” 

“I do think it is very important to align pay programs with performance, but also with risk governance.”

“What often creates problems are new regulations without even consulting the financial industry. Then that is put into a legal text, passed as a law, and then the industry is asked to do an impact assessment to see how things map out. That’s usually not the best way to regulate. 

What is needed is working on regulatory initiatives together. One might find the proposed regulation triggers important unintended consequences. One can then work to eliminate those before going live with a regulation. 

Part of what I’ve really wanted to achieve was more mutual recognition of both sides — public and private — to develop a better appreciation for how either side is doing its best to achieve a common good.”