As stewards of financial institutions, boards and senior management bear the responsibility of ensuring that regulatory policies translate into operational practices. Rules must be embedded into the day-to-day business and operations that suit an institution’s business environment. Good corporate governance will not emerge from mere compliance with regulatory checklists as each financial institution is different and unique. With careful introspection, each individual institution needs to continuously reflect on whether its governance arrangements, practices and business models are effective and still relevant. In doing so, each institution must continuously assess and take into consideration the nature, scope and scale of its business. In some instances, conventional and proven governance approaches might not work anymore and therefore new thinking and methodologies are required. Real change cannot be dictated by regulation alone. This is neither sustainable nor possible. Instead, principles of good governance need to be deeply woven into the fabric – or DNA – of an organisation. Directors and senior management, as leaders of financial institutions, are in  BIS central bankers’ speeches  3  the position to foster a positive organisational culture. The board and senior management should work in harmony to cultivate an environment which appropriately balances between performance and stability. For instance, the structuring of remuneration schemes should reward long-term performance and encourage sound risk-taking. There should always be a balance between financial innovation and excessive risk-taking. While an equilibrium is not easy to attain, it cannot be achieved accidentally.

GARP, for example, is exploring this and has recently surveyed its members to better understand professional needs for “sustainability, climate risk, and ESG integration.”4 I am interested to hear from all of you about how your institutions are developing tools and practices to integrate climate risk into your risk management frameworks. Innovation and Culture It is no surprise to this audience that technological innovation, big data, and advanced analytics are transforming financial services. We can debate where we are on the maturity curve and what innovations are most likely to be transformative, but the direction of travel seems clear. I expect the afternoon session on “Technology, Big Data, and the Practice of Risk Management” will address core issues such as new approaches for model risk management in a world of widespread artificial intelligence; the inherent challenge of “explainability” and potential bias in algorithms; the strategic risks from new entrants; and the impact on human capital strategies. 2/4  BIS central bankers' speeches  I want to highlight a complementary, but different issue and focus on how firms manage these changes. More broadly, what type of corporate culture is needed to support a successful digital transformation? Over the past five years, the New York Fed has emphasized the importance of a healthy culture to reduce misconduct risk. In addition, I think there is likely a link between a firm’s culture and its ability to adapt to a changing environment, whether it is technological innovation, demographic change, new business models, or climate change.