Our Journey Towards Sound Bank Culture – Reflections and Beyond


14 Jan 2020

Our Journey Towards Sound Bank Culture – Reflections and Beyond

Alan Au, Executive Director (Banking Conduct), Hong Kong Monetary Authority

(Regulatory Keynote Address at 1LoD Summit in Hong Kong)

John (Baskott), Distinguished Guests, Ladies and Gentlemen,

  1. Good morning. Thanks so much to 1LoD for inviting me to address this year’s Summit in Hong Kong. I would like to extend a very warm welcome to you all, especially to those of you who have travelled to Hong Kong to attend the Summit.
  2. For those of you who attended last year’s Summit, you may recall that I talked about the relevance of Chinese ideologies of Confucianism (儒家), Legalism (法家) and Mencius (孟子) to sound bank culture. These are important guiding principles in the formulation of our policy on bank culture.  I am not planning to go deeper into the philosophical underpinnings this year.  Instead, I would like to talk about the supervisory work that we have done in promoting sound bank culture over the past year or so, and provide some concrete examples of good practices as well as issues of concern that we had observed, so that we can crystalise our expectations and aspirations as a bank regulator. 

What is self-reflection and why is it important?

  1. To begin with, I want to share with you the words of Carl Jung, a prominent psychologist in the 20th century, to get us all thinking about the concept of “self-reflection”. He said, I quote, “your vision will become clear only when you can look into your own heart.  Who looks outside, dreams; who looks inside, awakes. (unquote)”1  In other words, self-reflection is essential if we want to understand ourselves, and only by doing so can we realise our goals and how far we still have to go if we are to achieve those goals.
  2. Not only does the concept of self-reflection apply to our daily lives, but it also applies to banks in their journey towards sound bank culture. As there is no “one size fits all” approach to sound bank culture, each bank needs to map out its own path.  As such, banks need to have self-reflective capability to understand what their desired culture would be, and the gap between their current progress and the realisation of desired culture within the bank.  
  3. Some questions that banks’ leadership can ask themselves include: What proactive steps have we taken in driving culture reform? How do we motivate our staff to live up to the desired culture?  What are the lessons we have learnt?  Are there any good practices or key challenges?  How close are we to achieving the desired culture?

Why do we do self-assessment?

  1. With this in mind, the HKMA first commenced the self-assessment exercise following our announcement of the three-pronged supervisory measures for bank culture in December 2018, because we believe that reflecting on oneself is important for banks when embarking on a journey to realisation and improvement. Furthermore, the exercise provides the opportunity for us to understand how banks are progressing in their culture reform journey.  
  2. Moreover, our observations from the self-assessment submissions will inform our further culture enhancement work, including the other two prongs of our supervisory measures, namely focused reviews and culture dialogues, which I will update you on our progress later in my speech.
  3. In the self-assessment exercise which we commenced in early 2019, we asked 30 banks, including all major retail banks in Hong Kong as well as selected foreign bank branches with substantive operations in Hong Kong, to reflect on their own culture efforts, and benchmark themselves against the findings of major conduct incidents outside Hong Kong. We appreciate that banks will need time to conduct a thorough and meaningful self-assessment, and hence banks were given six months to complete the exercise. 
  4. We have reviewed the self-assessment submissions from the banks covered in the first phase of the exercise, with a view to drawing insights from the submission for providing a range of practices for reference by the industry, and also identifying common themes that have emerged from the self-assessments.

How banks approach culture reform

  1. Taking the opportunity of the Summit today, I would like to share with you some preliminary observations on the self-assessments based on our review so far. Overall speaking, it is encouraging to see that banks generally agree with the need to foster sound bank culture, and have been implementing a range of culture enhancement initiatives.  As I mentioned earlier, there is no “one size fits all” approach to sound bank culture, so let me share with you some examples of how banks approach their culture reform along the three pillars of governance, incentive systems, and assessment and feedback mechanisms.
  2. First of all, let’s talk about the first pillar – governance. The board of directors and the senior management team are responsible for setting and taking ownership of the culture, values and behavioural standards of banks.  We are pleased to see that for all 30 banks invited in the exercise, all locally incorporated banks have a board-level committee, chaired by an independent non-executive director, to oversee culture-related matters, and overseas incorporated banks in general also have board-level oversight at either global or regional level on culture-related matters.  While the bank’s leadership plays a significant role in changing culture by setting the ‘tone from the top’, I believe that you would agree with me that board-level oversight alone would be insufficient if banks want all their staff to understand and live up to the desired culture.
  3. Therefore, it is equally important that the banks’ leadership cascade the “tone from the top” down to ensure that the bank’s desired culture, values and behavioural standards are understood and shared by different levels of staff, through effective and continual communications and training.
  4. In this connection, I want to first share an example of the use of non-traditional communication method which can be an effective means of raising staff awareness. A bank produced a series of videos covering conduct-related themes that creatively intermingled Fung Shui elements after learning that staff would be more effectively engaged if the messages were communicated through videos.  For those of you who do not know well about Fung Shui, it is a traditional Chinese methodology of assessing the “energy” in the landscape and environment with a view to foretelling or shaping your fortune.  The videos, which were broadcasted to all staff in the bank, had a different conduct-related focus every month, and featured a local Fung Shui master or celebrity together with a member of the bank’s senior management team.  The bank received largely positive feedback among staff under this non-traditional communication method.  Please do not get me wrong – I am not meaning that you have to have good Fung Shui for shaping sound bank culture.  The point that I would like to make is that, banks should bear in mind that they should aim to communicate culture expectations in a language that can be easily understood by their staff, so that their staff can identify themselves as part of the team with the common goal of shaping sound bank culture.
  5. Another example that I want to share is the use of summary sheets to translate the “tone from the top” to different levels of staff which would be more relevant to and easily understood by them. A bank has tailored-made the summary sheets of the bank’s culture and behavioural standards for various business functions.  For example, the summary sheet designed for its retail banking business cited, among others, that “encouraging customers to replace existing product at the bank or third party products in order to earn new commissions” is among the actions that are considered to be breaches of the bank’s code of conduct.  In other words, the summary sheet is designed in such a way that makes culture issues resonate with the day-to-day work at the retail banking function. 
  6. Moving on to the second pillar – incentive systems, we encourage banks to promote positive behaviours through proper incentive systems, such as through both monetary and non-monetary rewards for staff who demonstrate exemplary behaviours. We have seen interesting initiatives in the use of monetary rewards.  For example, a bank has a dedicated online platform that provides peer recognition systems for employees to recognise each other for positive behaviours under a set of criteria, such as “speak up” and “do the right thing”, and gives out monetary rewards to employees who have accumulated a certain number of recognition points.
  7. As for disincentives, most banks have certain consequence management mechanisms in place that set out the consequences of undesirable behaviour. For example, a bank has in place a “Red Flag” mechanism as a core part of the bank’s consequence management framework.  Specifically, the bank has listed out the different types of breaches and their corresponding “Red Flag scores” for the purposes of tracking employees’ undesirable behaviours.  When an employee has exceeded a pre-specified threshold for “Red Flag score”, his or her performance rating and compensation may be adjusted downwards.
  8. Let’s now turn to the third pillar – assessment and feedback mechanisms. While banks have implemented a series of culture initiatives, it is important to assess whether these initiatives are effective in driving culture change.  Many banks have just set up their culture dashboards, and they are still at an early stage to determine what would be the right indicators and how to use the dashboards to inform their culture journey. 
  9. A bank has demonstrated a higher level of maturity in assessing and understanding culture by developing a dashboard which has incorporated multiple data sources, including feedback from their employee survey in which the employees would rate perceptions of themselves as well as other colleagues, and other quantitative data which allows for the different data sources to be triangulated. The dashboard itself is also reviewed and revised from time to time to enhance its readability and reliability.
  10. Apart from culture assessment, I wish to share our observations on how banks foster a “speak up” culture that encourages employees to escalate issues without fear of reprisals. While all banks have certain “speak up” mechanisms in place, effective “speak up” mechanisms must put a great focus on protecting those employees who choose to speak up.  We are pleased to see that some banks have implemented measures in the whistle-blowing mechanisms that promote an environment of psychological safety for their employees to speak up.  
  11. For example, a bank operates a 24/7 dedicated hotline with live operators who can connect to translators in multiple languages to make it convenient and comfortable for staff to raise concerns or report promptly, both during and outside office hours. Another bank has set out in the relevant policy explicitly that retaliation against whistle-blowers is subject to disciplinary action that can entail termination of employment.  

What are the common emerging themes?

  1. While good progress has been made, there are common emerging themes which we have identified from the self-assessments. Let me now share with you some of these emerging themes which we expect banks to pay more attention to.  
  2. First of all, we observed that the culture enhancements are often driven by the headquarters of those banks which are part of an overseas incorporated bank. However, the links of these banks to the culture efforts of their headquarters or upstream entities vary, with some of these links being weak.  There is, in general, limited coverage in the self-assessments on how adjustments have been or will be made by these banks with regard to local circumstances, to ensure the buy-in for the culture promoted at the regional or global level.  It is also unclear how the headquarters are providing support to their operations in Hong Kong in implementing culture enhancement initiatives.
  3. Similarly, the links to downstream overseas operations from the regional headquarters here in Hong Kong can be weak or even non-existent. For example, a bank acknowledged that ensuring an on-going and effective implementation of its cultural initiatives across all geographies and at all level of the organisation is a key challenge.  We expect banks to cascade down its desired culture to its downstream operations outside Hong Kong.  This is particular important for larger banks that span numerous geographies and business lines, and can have a large number of different sub-cultures developed over time. 
  4. Another area is incentive system. I think you would all agree with me that incentive systems play a crucial role in driving behaviors.  Specifically, we would like to see more initiatives in terms of incentive systems which are designed to promote sound culture and prevent incidents of misconduct.  However, in most of the banks’ self-assessments, coverage of incentive systems is relatively limited, as compared to those related to the other two pillars.  
  5. Another common emerging theme is the inadequate effort that banks have put in to benchmark themselves against the findings of the review of the major overseas misconduct incidents. We see from the self-assessments that most banks did not go beyond simple sharing of the factual happenings of those overseas misconduct cases with their employees.  As mentioned at the beginning, self-reflection is essential to banks in their journey to cultivate sound bank culture.  We would expect banks to understand the underlying root causes of the major misconduct incidents happening in other banks, and try to identify whether similar incidents could actually arise in their own banks even if they were not operating in exactly the same way or selling exactly the same products as in those misconduct incidents.  We would also expect banks to take appropriate actions within their own banks to prevent similar issues that they may face.
  6. Last but not least, assessing culture remains a key challenge to banks. As there is no “one size fits all” approach to culture, we recognise that there is no single way or a set of uniform indicators for banks when assessing culture.  We observed that most banks have incorporated backward-looking indicators (i.e. what had happened in the past) in their culture dashboards.  However, it is important to incorporate forward-looking indicators which would help banks to identify what may happen in future.  A few banks only rely on a single source of data, for example, results from employee survey, when assessing their culture.  A more sophisticated approach would be combining both quantitative and qualitative data from multiple sources to allow for the different culture indicators to be triangulated. 

What’s next: 2020 and beyond

  1. So what would be our next steps after all these reflections? We are planning to share more details of our observations from the review of the self-assessments with the industry in due course, and the insights drawn from the self-assessments will be used to inform our further work on bank culture supervision. 
  2. We plan to, as next steps, commence focused reviews in 2020 with an aim to dive deeply into certain key areas of bank culture; for example, incentive systems of front offices in specific business streams of retail banks.
  3. As for culture dialogues, we have already commenced such dialogues with a few banks in 2019 and the engagement with banks will continue in 2020. During the dialogues, we had in-depth discussions with the banks’ leadership responsible for bank culture on the effectiveness of their culture enhancement efforts.  The dialogues also provide an opportunity for the HKMA to pass on our supervisory feedback on conduct and culture, including our observations identified through our ongoing supervision.  
  4. Looking ahead, we will continue to work hard on our bank culture reform efforts and maintain close dialogue with other regulators on the development of bank culture, while exploring other culture initiatives taking into account overseas experience and the common emerging themes from the self-assessment.

Concluding remarks

  1. Ladies and gentlemen, although good progress has been made, banks are encouraged to pay more attention to the common emerging themes as they continue their culture journey. We believe now that the self-assessment has encouraged and facilitated banks to carry out self-reflection, banks can go forward in their journeys with increased self-awareness of their goals and progress, as well as a better idea of how they can foster sound bank culture that is tailored to their own goals and circumstances.  We will continue to work closely with the banking industry in this regard.
  2. Last but not least, I would like to thank 1LoD again for inviting me here today. I hope that my sharing, as well as the rest of the programme at the Summit today, would allow for further reflection that would benefit all of us as we map out the path towards sound bank culture.
  3. Thank you very much.


1 Jung, Carl Gustav. C.G. Jung Letters, Vol. 1: 1906-1950. Oxford: Routledge, 2015.

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