4/6  BIS central bankers' speeches  As we continue to see the impact of technology and big data in other parts of financial services, one interesting question is how innovation and enhanced technology will support the measurement and management of culture. The potential of big data analytics to revolutionize approaches in many areas of business has been talked about for years, and is now beginning to become a reality. For example, we might see firms routinely leverage broader data to make stronger predictions about potential misconduct risk, which could be useful to help focus scarce compliance resources. Some may view the official sector as an impediment to the adoption of new technologies, but I don’t think that needs to be the case. In the context of compliance risk management in the U.S., the five federal banking agencies recently encouraged financial firms to explore innovative approaches to meet their compliance obligations related to money laundering and further strengthen the industry against illicit activity.15 Similarly, in the U.K., Rob Gruppetta, head of the Financial Crime Department at the Financial Conduct Authority, has spoken about the “balancing act” the FCA faces as a regulator trying to encourage progress and innovation while also mitigating danger and imprudent risk-taking. He points out that data from new technologies has also allowed the FCA to be more consistent, effective, and risk-based in its supervisory approach toward conduct risk.16 This leads to a question about how firms can use similar tools and techniques to mitigate misconduct risk and promote healthy cultures.
To be clear, it is not the role of the official sector to set the internal culture of a firm—that responsibility lies squarely with the board of directors and senior management. Rather, the job of the official sector is to promote standards and practices that will mitigate misconduct risk and promote efficient and sustained financial intermediation and financial stability. Global supervisors have taken a number of approaches when it comes to understanding, influencing, and assessing culture at firms. In the whitepaper I mentioned earlier, my New York Fed colleagues and I included a section describing a selection of approaches that the official sector has employed. The Financial Stability Board Working Group on Governance Frameworks (FSB WGGF) has published a range of tools for supervisors to use in assessing firms’ management of cultural drivers of misconduct, as well as a summary of supervisory approaches and practices in supervising for culture.14 This variation reflects differences in mandates, tools, and authority. Looking across jurisdictions, we see supervisory efforts such as specialized units of behavioral experts, risk culture assessment frameworks, and supervisory guidance that directs supervised institutions to develop and promote a sound corporate culture. This variation in approach is a valuable feature of the official sector focus on conduct and culture reform. As the official sector innovates, experiments, and introduces new approaches, we’ll develop a better understanding of how to best promote a healthy culture and mitigate misconduct risk. Measurement and Assessment I’ll now turn to the question of measurement and assessment.