Supervisory framework for assessing
conduct and culture in the financial sector
Femke de Vries
De Nederlandsche Bank
June 17th, 2014
The Asch Experiment
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Pre-crisis supervision
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Post-crisis supervision
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Why supervision on culture & behaviour?
• One of the causes of the crisis: not so much inadequate governance
structures, but board and management behaviour within these structures
• People determine a company’s performance
• Risks relating to behaviour may already be apparent, while financially
everything seems okay:
• Behaviour has predictive value with respect to future financial
performance
• Early intervention may prevent future problems
More rules alone will not prevent the next crisis
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Methodology
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Conduct and culture is one of the pieces of the
puzzle
Financial analysis
(financial experts)
Conduct and
culture
(psychologists)
IT Risk
(IT auditors)
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Assessment of
business models
(strategic experts)
Integrity risk
(experts)
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Culture
Leiderschap: voorbeeldgedrag en bespreekbaarheid
Besluitvorming: evenwichtig en consistent
Communicatie: transparant
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Supervision on culture and behaviour
• Het toezicht van DNB is gericht op het identificeren en voorkomen van
risico’s
Identifies
thatvoortvloeien
may emanateuit
from
behavior
and culture:
dierisks
kunnen
cultuur
en gedrag.
both risk based and “at random”
Risk
based in
case
of:is gericht op het beïnvloeden van instellingen om deze
• Het
toezicht
van
DNB
Incidents (financial or non financial)
risico’s
teofverkleinen
ofboard
elimineren.
Lot
changes in the
or sr management in short period of time
Financial problems
High risk appetite
Non compliant behaviour
• Naast traditioneel toezicht (solvabiliteit en liquiditeit) en niet in plaats van.
Assesses these risks to cause institutions to eliminate these risks
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Focus on the question whether leadership, group dynamics and decision making contributes to
the (economical) performance of a firm
We will intervene in case of riskfull behavior or lack of follow up
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Methodology
Decision Making + Board Effectiveness
Desk research
First
intervention
Interviews
Survey & Selfassessment
Discussion of
findings
Observations
(meetings and
log)
Reports
Start of second
intervention =
tracking follow up
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What is your opinion?
• Culture cannot be translated into audit standards
• Assessment of culture and behaviour should be
part of any SAI risk analysis
• SAIs can play an important role in stimulating
neccessary culture changes in public sector
organisations
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Results
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Case-Findings
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Case-Supervisory approach
Report (on paper)
Send to management and supervisory
board => supervisory board and
shareholder become involved, leading to
several actions
Bank itself replaces CEO and CFO and look
for new CRO. DNB is involved in short list
and selection
Intensive follow up with respect to
leadership, group dynamics and decisionmaking
New board is receiving coaching on
behavioural change.
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Key areas
Culture change requires permanent attention of directors and auditors
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General impact of supervision on culture & behaviour
cause
Inter
vention
effect
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Actual changes we see:
−
governance and staffing: changing board
composition
−
changes in decision making processes:
−
more structured decision-making
processes,
−
better preparation of decisions,
−
more involvement of key control
functions,
−
evaluation of complex decision
making,
−
organizing constructive challenge and
debate
−
more facilitative leadership styles
−
better information-sharing between the
management and supervisory board
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Final comments
• Every organization and every group may be affected by leadership problems
or adverse group dynamics
• DNB has found risky situations pertaining to culture & behavior and has
caused the institutions to eliminate these risks
• We also found good examples
• However, there is still a lot more awareness needed and improvements to be
made, which will take a lot of effort and time (change takes time!)
• Permanent Board commitment and attention for culture & behavior within
financial institutions remains required to prevent adverse effects from behavior
and insufficiently considered decisions
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What is your experience?
• Our SAI is committed to an ethical culture and behaviour
within our own organisation
• Our SAI has invested in facilitative leadership
• Our SAI systematically organises internal and external
challenge, dialogue and debate
• Our SAIs decision making process is frequently evaluated
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