In the first part of this post, I outlined two markers of good culture in financial services (responses to regulation and culture touchpoints), and making the point that culture is tangible and measurable (this post is based on my presentation at the recent RiskMinds conference).
Knowing what a firm’s culture looks like can help to improve it. Most banks in the UK are well underway to devising conduct and culture-related management information (see “The importance of good conduct risk management information”). US banks are now accelerating their work in this area.
The most important place to start is to ask ‘who needs to know?’. Boards, Group Risk or Compliance, Executive Committees, and Product Governance Committees are all governance bodies that have specific information requirements pertaining to conduct and culture. We have seen many banks start the process with the question ‘what culture-relevant data do we have?’. Because the information captured was often not linked to user requirements, it was also not actionable, and banks found themselves having to restart the process.
Using information requirements, the culture touchpoints discussed above will lead to specific key risk indicators (KRIs). Some of the more useful indicators include:
- Breaches by senior personnel
- Percentage of complaints for sales by robots humans
- Percentage of products sold in bundles
- Percentage of employees seen as role models
- Percentage of products with no alternatives for vulnerable customers
- Percentage of trade orders cancelled
- Percentage of trades through dummy counterparties
- Percentage of actual vs. forecast profitability, by product1
Ultimately, culture-based data is just that: data. Transforming it into insight requires qualitative judgement by people from different parts of the organisation—outlining context, root causes, exceptions, follow up actions, to name but a few. Several banks have even begun to involve representatives from across their business to review raw data and come to an understanding on what it says about their culture, and this before presenting data to senior management. This encourages greater awareness and ownership of culture, as well as conduct across the business.
In sum, good culture can be seen in responses to the ‘spirit’ of regulation, the data related to tangible touchpoints among key business participants, and in the way organisations use cultural insights to communicate and encourage better judgement.
 The latter KRI demonstrates why some data is more useful to certain groups. When presented to a Product Governance Committee, it could be interpreted or indicate mis-selling. However, to a Board, such data would not be helpful. Either it would require all products to be aggregated (losing the ability to detect outliers), or else to report all the products (creating information overload).