Supervisors on Supervision

“The Hong Kong Monetary Authority (HKMA) initiated its “Bank Culture Reform” programme in March 2017, with a view to cultivating the right culture and values in banks. 

The HKMA’s reform effort seeks to develop and promote sound banking culture that supports prudent risk management and contributes towards incentivising proper staff behaviour, that will lead to positive customer outcomes and high ethical standards in the banking industry. 

While there is no one-size-fits-all approach when it comes to culture, the HKMA asks banks to adopt a holistic and effective framework for fostering sound culture within their institutions, with a focus on three main pillars: 

1. strong governance; 

2. appropriate incentive systems; and 

3. effective assessment and feedback mechanisms.”

“It is important for banks to assess whether the culture initiatives are effective in driving behavioral changes among bank staff. Along this line of thinking, the HKMA announced three supervisory measures for bank culture reform in December 2018, namely: self-assessments, focused reviews, and culture dialogues. 

As banks map out their own paths towards sound bank culture, they need to have a self reflective capability to understand what their desired culture might be, and to identify the gap between their current progress and the realisation of the desired culture within the bank. With this in mind, the HKMA first commenced the bank self-assessment exercise in early 2019. 

The HKMA identified several common themes in the self-assessments… For instance, the HKMA sees that assessing culture remains a key challenge for many banks. While recognising that there is no single way nor uniform set of indicators for banks to make use of when assessing culture, a more sophisticated culture assessment approach must not look at individual indicators in isolation, but must instead combine both quantitative and qualitative data from multiple sources to allow for the different culture indicators to be triangulated. 

This is where technology can play a role in assisting banks to address the challenges they face in assessing culture. With the right tools and technology, a potential exists for banks to deliver a ‘big picture’ analysis, with meaningful culture insights, to inform Boards and senior management alike. 

Such tools would permit banks to assess how close they are to achieving their desired culture, and will help them to understand what enhancements may need to be implemented in order to drive effective cultural change.”

“The HKMA believes the time is right for closer collaboration among the banking industry, the technology community, and the HKMA to further facilitate the adoption of Regtech in Hong Kong.”