2 6월 2020 Sumit Indwar  - Clara Hackney Financial Regulation

HKMA report provides update on Bank Culture Reform

The HKMA has published a circular accompanied by the Report on Review of Self-Assessments on Bank Culture. The findings from this report come out of the bank culture self-assessments submitted by the 30 banks as selected by the HKMA in 2019. The findings have also informed the HKMA’s direction of travel on bank culture supervision.

The HKMA has identified some common themes and key observations which it stresses will be relevant to all Authorised Institutions (AIs). Therefore the report is required reading for all AIs. AIs should be assessing whether the practices and issues raised could be relevant to them, including AIs which were not within the 30 banks initially selected who should also reflect on their own culture in light of the report.

The full report sets out a range of practices under the HKMA’s three pillars for promoting sound bank culture (governance, incentives and feedback and assessment). From these practices, the HKMA has highlighted seven common themes which AIs should spend some time reviewing in their own institutions.

Common Themes

  • Further work is needed to ensure their incentive systems are designed to promote sound culture and prevent incidents of misconduct. The HKMA gives examples of initiatives it would expect to see including strengthening the linkage between remuneration outcomes and staff performance on adherence to corporate values regardless of their financial performance, and ensuring there is clear consequence management frameworks in place to promote culture of accountability.
  • Stronger links are required to connect their Hong Kong SAR operations with the culture efforts of their headquarters or upstream entities as well as their downstream operations, as appropriate. Headquarters are often the drivers of cultural enhancements, so the links downstream and upstream need to be strengthened, with a clear demonstration of how the headquarters provide support in this area.
  • Deeper analysis is expected to benchmark themselves against the findings from the reviews of the major overseas misconduct incidents. The HKMA expects banks not just to know about the incidents or to take a lessons learnt approach, but to go further by understanding the underlying causes of the issues and extrapolate this information to assess how it could affect their own institution even if they are operating in a different way/with different products or services.
  • More focus is needed to facilitate the undertaking by relevant staff of the continuous professional development under the Enhanced Competency Framework or by other professional bodies to complement the effort of promoting sound culture.
  • More effort is needed to tackle the key challenge of culture assessment to identify the gaps between current progress and desired culture. Suggested initiatives to assist AIs in achieving this include combining both qualitative and quantitative data from multiple sources to allow for a better capture of cultural indicators, and using forward looking indicators to help identify what might happen in the future.
  • More work is needed in promoting an environment which provides “psychological safety” to encourage staff to speak up without fear of adverse consequences. While most banks have in place formal “whistleblowing” or “speak up” arrangements and escalation channels, this needs to be complemented by continuous communications to reinforce the message that it is safe and important to speak up.
  • Sustained effort is required in driving cultural changes and banks should be mindful of “culture fatigue”.

What next?

Unsurprisingly, the focus on promoting a sound bank culture is not going away, and the HKMA gives a good overview of areas it will continue to look at within the report. The HKMA will continue with culture dialogues which it began in 2019, and AIs selected will be informed individually.

The HKMA is going to look at incentive systems, specifically focusing on a deep-dive into the incentive systems of front offices in the business of distributing banking, investment and/or insurance products in retail banks.

Finally, it is worth noting that the HKMA has been very clear in its expectation that AIs look at experience overseas, such as the Royal Commission into Banking in Australia. AIs should continue to approach the question of what good culture looks like from a global viewpoint, drawing on emerging experiences and themes both in Hong Kong and overseas.