Banking regulators turn up the pressure on culture and conduct

Friday, 29 April 2016 00:00 - - {{hitsCtrl.values.hits}}

The culture and conduct of financial institutions are drawing more scrutiny from regulators and supervisors as they have turned their attention increasingly to instances of misconduct in both the wholesale and retail financial markets.

The latest in KPMG International’s Evolving Banking Regulation series, titled “Culture and Conduct,” looks at the challenges for banks and other institutions arising from the regulatory as well as commercial and societal pressures to improve their culture, behaviour and standards of conduct.

“Banks and other financial institutions are asking themselves some fundamental questions about their desired culture and values, and how these are reflected across the entirety of their organisations,” said KPMG International EMA Financial Services Regulatory Center of Excellence lead, Giles Williams, “They need to be prepared for regulators to ask them these very same questions.”

The report reviews regulatory developments in the wholesale and retail financial markets and how they are targeting banks’ culture and behaviour, with a particular focus on greater transparency and consumer protection.

In wholesale markets, the report takes note of the overarching theme of applying broad principles of governance and transparency to the world of wholesale market conduct. The combination of global standard setting and investigations across Europe, the U.S. and Asia is spreading global standards across regions, albeit not always completely consistently.

On the retail side, international standard-setters, the EU and many national authorities have taken moves to strengthen consumer protection and increase transparency, with significant political pressure to deliver change.

Across financial markets, regulators are looking to hold board members and senior management of firms directly responsible for establishing, maintaining and communicating their firms’ culture and values and for leading cultural and ethical change.

“Beyond broad direction, there is limited regulatory guidance on needed cultural and behavioural changes in institutions,” said Williams. “It is up to senior management and boards to define the parameters of a ‘good’ culture, identify where the gaps are within their firm, develop a plan for improvements, and be prepared to measure and communicate the results.”

The report also provides a roadmap for institutions to follow in successfully designing and embedding desired culture and values with steps to help ensure that they are reinforced throughout the organisation.

“There is a need to rebuild public trust in banks and in the financial system more generally,” added Williams. “Forward thinking financial institutions are using good culture and behaviour as a means of establishing a competitive edge.”