Published Date: 28 March 2019

"Elevating Standards of Culture and Conduct in the Banking Industry" – Opening Address by Ms Ho Hern Shin, Assistant Managing Director (Banking and Insurance), Monetary Authority of Singapore, at the Roundtable on Culture and Conduct Practices and Incentive Structures on 27 March 2019

1    Ladies and gentlemen, good morning. Welcome to the industry roundtable on culture and conduct practices and incentive structures.

2    Globally, public confidence and trust in banks have fared poorly in the past decade. Repeated revelations of gross misconduct and unethical practices have made that trust, which was stronger in earlier years, hard to regain. In the 2019 Edelman Trust Barometer, the financial services sector was once again the least-trusted sector amongst 15 sectors.

3    Building strong organisational culture in banks is increasingly acknowledged as a way to address misconduct. A culture focused on ethics and putting customers first fosters sustainable customer service excellence. This in turn builds customer trust and with it, business growth. The Edelman Trust Barometer 2018 report on financial services revealed that 41% of consumers used the products and services of trusted financial institutions, and 31% recommended them to others. Therefore, cultivating sound organisational culture is not just about risk mitigation, but also present opportunities for value creation for financial institutions.

MAS’ approach towards culture and conduct

4    With this in mind, MAS has been intensifying our supervisory emphasis on financial institutions’ culture and conduct. We adopt a three-pronged approach, which recognises that good culture is driven by both the internal leadership and self-discipline within the financial institutions, as well as effective supervisory efforts by the regulator.

(i)    First, Promote and Cultivate. MAS works with industry players to promote a culture of trust and ethical behaviour in the financial sector. Through our regular dialogues with banks, we seek to cultivate mindshare and awareness of the importance of good culture and conduct, understand your operational challenges, and facilitate sharing of good practices across financial institutions. 

(ii)    Second, Monitor and Assess. MAS monitors and assesses financial institutions’ culture and conduct as part of our off-site supervision and on-site inspections. Feedback and supervisory guidance is then provided to financial institutions on areas for improvement. This reinforces the first prong.

(iii)   Third, Enforce and Deter. MAS takes supervisory or enforcement actions against financial institutions and individuals where lapses in risk management, misconduct, regulatory breaches, or offences have occurred. 

5    While all three prongs are important and reinforce one another, we hope to do more in our first and second prongs. Cultivating and monitoring industry norms of desired behaviour are more pre-emptive approaches towards lowering the likelihood of serious lapses in the industry. 

MAS’ recent reviews on culture and conduct in the banking industry

6    As part of the second prong - “monitor and assess”, MAS conducted a series of culture and conduct surveys and dialogues with a number of financial institutions over the last two years. This served as a stock-take of financial institutions’ culture and conduct practices, and provided a useful view of the current landscape and maturity of practices. MAS has also carried out thematic inspections on selected banks’ incentive structures to assess how these practices incentivise ethical behaviour, prudent risk-taking, and responsible sales practices amongst staff. 

7    I am pleased to note that banks have paid increasing attention on culture and conduct, and have taken positive steps to instil good values and conduct. In the more advanced banks, senior management communicates regularly with staff on culture and conduct objectives and issues, values and behaviour are clearly factored into performance appraisals, and remuneration structures align compensation pay-outs with time horizon of risks taken. However, the observed progress is uneven across banks, and more needs to be done. Let me share opportunities observed from our thematic surveys and inspections here.

(i)    First, a number of executives struggled to articulate their assessment of the organisations’ culture, and the culture and conduct risks they face.

This indicates the lack of a holistic, cross-functional view of the culture within the organisation, and likely, the lack of robust monitoring tools and metrics to measure culture and conduct. Understanding culture is neither a simple nor straightforward exercise. The existence of internal frameworks, policies, processes, procedures and rules – we call these the “hardware” factors – whilst easy to measure, does not guarantee a good culture.  Rules cannot cover all situations and staff are still required to exercise good judgement in grey areas when these arise. Will staff do what is right in situations where the “right” response is not prescribed in the rules? How can an organisation assess or influence the outcome of such situations?  What are the “softer” and perhaps harder to measure factors that drive staff behaviours within organisations? 

Many banks are in this journey to build processes to facilitate such understanding.  We encourage banks to continue to explore different and innovative means of doing this effectively, and share this generously, so the industry can benefit from our collective experience.

(ii)    Second, some banks shared challenges in strengthening the tone from the middle.

Banks have been rightly placing emphasis on the importance of middle management in promoting sound culture. Staff are most influenced by their immediate supervisors.  Consequently, much of the organisations’ good intentions and efforts can go to waste if middle managers do not walk the talk and practise what the organisation preaches. While work in this area has started, continued progress is needed to ensure that middle management consistently and effectively communicates desired organisational values and behavioural expectations to staff.  
(iii)    Third, compensation structures based primarily on financial targets continue to exist in some banks.

Incentives drive behaviour, and many banks already assess staff against both the ability to meet financial key performance indicators (KPIs), or the “what”, and the manner in which these KPIs are achieved - that is the “how”. We expect banks’ incentive structures not to be overly focused on financial targets, but also to emphasise the need to adopt ethical ways to achieve them, taking into consideration customers’ interests and prudent risk-taking. Behavioural factors should influence performance evaluation, remuneration and promotion decisions.

8    We will be publishing an information paper on incentive structures today to share more detailed learnings gained from our thematic inspections. We encourage all banks, not just those involved in the thematic inspections, to benchmark themselves against the good practices highlighted in the paper, and adopt these practices in a manner that is relevant and appropriate to the banks’ business models and risk profiles.

Facilitating cooperation amongst industry players

9    The first prong of promoting and cultivating good practices in the industry is no less important.  The recently published G30 report1 highlighted that industry-wide dialogue and sharing of best practices on culture and conduct are key to a stronger and healthier banking industry. Collaboration and comparison allows banks to benchmark their own practices relative to those of peers. Constructive challenges from one’s peers could also guard against overconfidence in one’s own approaches. The report also highlighted that leaders play a crucial role in cultivating culture within their organisations. 

10   To facilitate such dialogue amongst senior industry leaders on sound culture and conduct practices, MAS has been working with the Association of Banks in Singapore to set up an ABS Culture and Conduct Industry Steering Group. We are delighted that Mr Shee Tse Koon, Singapore Country Head of DBS, has kindly agreed to chair this Steering Group.  The Steering Group will serve as a platform for industry participants to share leading practices on culture and conduct, and to consider how best to tailor these practices to facilitate wider adoption. It will also embark on initiatives to promote strong culture and conduct within the industry. This could include reviewing existing industry codes to ensure their continued relevance, or even performing industry self-assessments. MAS looks forward to collaborating and having constructive dialogues with the Steering Group to work towards the common goal of elevating industry standards.


11   Our roundtable today similarly seeks to facilitate a rich exchange of views and ideas amongst industry leaders. Edgar Schein, a well-known organisational culture expert, tells us that “culture is not a surface phenomenon; it is our very core”. Culture exists, whether we choose to ignore it, or actively influence it. We hope you will find the sharing by the speakers, and conversations around the table, both insightful and helpful towards your continued quest of making sound culture, and high standards of conduct, a valuable asset within your banks.

12   Thank you and I wish you a fruitful roundtable discussion.

1 “Banking Conduct and Culture – A Permanent Mindset Change” published by Group of Thirty, Washington, D.C., November 2018