Regulators and policymakers around the world remain focused on culture and conduct risk. Indeed, Ian Johnston, Chief Executive of the Dubai Financial Services Authority, has gone so far as to suggest that conduct risk could be considered the “new” prudential risk. In an article for Starling Insights, Johnson wrote “Until events of the past couple of months, I would have said ‘no’. But perhaps the Credit Suisse matter shows that a string of misconduct episodes might sufficiently affect the reputation of an institution that confidence could be eroded. And we know where that can lead.”
The Federal Reserve Bank of New York has a continuing focus on governance & culture reform which is part of the supervisor’s efforts to understand and influence industry norms to help create a safer and more trustworthy banking sector. Five key messages coming out of its 2023 Governance and Culture Reform Conference highlight the issues with the most emphatic and deceptively simple takeaway being to motivate desired behaviors, and making the point that it is important to appreciate organizational staff and do so publicly. This often is easy to say and hard to do. There was general agreement that even the simplest acknowledgment can make a difference. Neuroscientist Mauricio Delgado confirmed that even a thumbs-up emoji or a smiley face can be more motivating than some forms of monetary compensation.
At the same time, several speakers observed that failing to acknowledge staff efforts can breed toxicity and resentment, leading to suboptimal decision-making and ultimately creating the context for poor conduct.
