Supervisory framework for assessing conduct and culture in the
financial sector Femke de Vries De Nederlandsche Bank June 17th,
2014 Slide 2 2 DNB The Asch Experiment Slide 3 3 DNB Pre-crisis
supervision Slide 4 4 DNB Post-crisis supervision Slide 5 5 DNB One
of the causes of the crisis: not so much inadequate governance
structures, but board and management behaviour within these
structures People determine a companys 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 Why
supervision on culture & behaviour? Slide 6 6 DNB Methodology
Slide 7 7 DNB Conduct and culture is one of the pieces of the
puzzle Financial analysis (financial experts) Conduct and culture
(psychologists) Assessment of business models (strategic experts)
IT Risk (IT auditors) Integrity risk (experts) Slide 8 8 DNB
Culture Leiderschap: voorbeeldgedrag en bespreekbaarheid
Besluitvorming: evenwichtig en consistent Communicatie: transparant
Slide 9 9 DNB Supervision on culture and behaviour Het toezicht van
DNB is gericht op het identificeren en voorkomen van risicos die
kunnen voortvloeien uit cultuur en gedrag. Het toezicht van DNB is
gericht op het benvloeden van instellingen om deze risicos te
verkleinen of elimineren. Naast traditioneel toezicht
(solvabiliteit en liquiditeit) en niet in plaats van. Identifies
risks that may emanate from behavior and culture: both risk based
and at random Risk based in case of: Incidents (financial or non
financial) Lot of changes in the board or sr management in short
period of time Financial problems High risk appetite Non compliant
behaviour Assesses these risks to cause institutions to eliminate
these risks 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 Slide 10 10 DNB Decision Making +
Board Effectiveness Desk researchInterviews Survey & Self-
assessment Observations (meetings and log) Discussion of findings
Reports First intervention Start of second intervention = tracking
follow up Methodology Slide 11 11 DNB 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 Slide 12 12 DNB Results Slide 13 13 DNB
Case-Findings Slide 14 14 DNB 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 decision- making New
board is receiving coaching on behavioural change. Slide 15 15 DNB
Key areas Culture change requires permanent attention of directors
and auditors Slide 16 16 DNB General impact of supervision on
culture & behaviour effect Inter ventio n cause 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 Slide 17 17 DNB 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 Slide
18 18 DNB 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
