Contributions to the Supervisors on Supervision Stocktake
What does culture mean in the supervisory context?
“To date, discussions of culture have remained abstract. They’ve relied on self-assessment, survey sentiment or reputational proxies. Supervisors have struggled to clearly define what ‘good’ looks like and focus instead on evidence of ‘bad.’That understandably frustrates firms, which then tend to approach the topic as an exercise in window-dressing, designed to placate supervisors.”
Should culture, and the conduct proclivities it may promote or discourage among employees, factor into supervisory engagements?
“Trust, culture, and legitimacy are not abstract ideals… They are systemic inputs that determine the confidence enjoyed by institutions and markets.”
How does the lack of a common supervisory approach to culture and conduct risk across jurisdictions pose a concern?
"Culture is increasingly being treated as a ‘hard’ driver of risk.
Fragmented approaches to culture risk governance and supervision will make for inefficiencies and overlaps while leaving gaps in oversight. A shared framework, interoperable tools and a common evidentiary basis for judging effectiveness proactively, rather than remedying the consequences of failure after they manifest, yields the best result for the least regulatory burden.”
How do supervisors approach supervision in the absence of clear frameworks and guidelines related to culture?
“Supervision relies on discretion. That is both its value and its vulnerability.
Discretion, if it is to be exercised with the necessary legitimacy, must be transparent. It must produce results aligned with a mandate of stability.”
How does a lack of effective tools and frameworks for culture risk supervision impact perceptions of supervisory legitimacy?
“Regulators and supervisors operate within cultures that shape their own performance. Putting these tools to work in our own organizations may be exactly the place to start.”
What have we learned from past approaches to culture risk governance and supervision?
“Recurrent breakdowns — in conduct, governance and stability — demonstrate that resilience is not achieved through capital alone. Resilience depends on decision-making. And decision making is shaped by the norms, incentives and behaviours that define how institutions operate. It is shaped by culture.”
How do supervisors need to adapt in order to accelerate progress in culture supervision?
“We need to protect supervisory judgment, and we can do this by reinforcing it with more rigour and reliability. This will require investing in the skills and tools necessary to advance efficacy. As with monetary policy, trust in the consistency of supervision will determine its effectiveness.”
What systems and structures are needed to help supervisors and firms alike to find, evaluate, and easily adopt new technologies and methods as they come available?
“A shared framework, interoperable tools, and a common evidentiary basis… yields the best result for the least regulatory burden.”