Contributions to the Supervisors on Supervision Stocktake
How do supervisors approach supervision in the absence of clear frameworks and guidelines related to culture?
Culture is generally understood as the shared values, attitudes, behaviours and norms in an organisation. At the Monetary Authority of Singapore (MAS), our focus on culture and conduct in financial institutions (FIs) seeks to achieve two key objectives:
• Ethical business practices; and
• Prudent risk-taking and robust risk management. While one could measure the safety and soundness of an FI through indicators like capital, VaR and other financial metrics, measuring the fair treatment of customers requires more judgement.”
What tools, metrics, and data collection capabilities are currently available to support culture risk governance and supervision? What is working and what does this hold for the future?
“AI’s increasing adoption has added impetus for us to explicitly codify what is acceptable behaviour so that we do not end up with unintended outcomes. Values and norms that are implicit in our decision-making cannot be assumed when handing the reins to a machine.
The need to find ways to connect values to tangible metrics presents an opportunity for us to reflect on what metrics we might leverage to identify good ‘culture’.”
What frameworks have supervisory bodies considered as an effective means by which to assess culture risk governance among firms?
Over the years, substantial research has been invested into drawing the link between culture and corporate performance. Approaches to measuring culture have ranged from the use of surveys to more unobtrusive approaches like looking at complaints, online forums and employee emails.
MAS has been working on a Culture Assessment Framework to facilitate a supervisory strategy where intensity and focus is informed by the level of assessed risk of a given [financial institution (FI)].
The Framework will leverage behavioural science and organisational psychology concepts and techniques. The Framework is still in development and will broadly look to determine the likelihood that behavioural pressures in the internal and external environment of an FI would interact with behavioural patterns within the FI to result in negative control and conduct outcomes. Given the need for benchmarking across FIs, a survey approach will be adopted, with the model calibrated over time against information and insights derived from other aspects of our supervision.”