Some organizations are using a series of point-to-point tests to effectively simulate an end-to-end testing process. With regard to Fedwire, the Federal Reserve’s large-value funds transfer system, we have made the system available for external tests from July of this year. We have also begun BIS Review 85/1998  -7-  a program of shared testing days that allows multiple customers to simultaneously perform endto-end testing over the system. These tests will cover the full range of payments and accounting applications that we provide and will address both the century date conversion and the leap year date in 2000, which many systems also may not handle correctly. One of the key lessons that has come out of our test process for Fedwire is the importance of extensive planning for each aspect of the testing program. For example, both the testing schedule and test scripts required extensive efforts to develop. Furthermore, without the very substantial amount of communication and advance planning by the Federal Reserve and the banks involved, we could not be confident that the tests would provide a meaningful output. Naturally, appropriate internal testing must also be completed in order to derive maximum value from the external testing program. These lessons are particularly pertinent in the case of industry-wide external tests that are designed to permit most or all system participants to test simultaneously with each other. For example, the Securities Industry Association in the United States has developed a very ambitious program of this type for the US stock market.

This is worrying, because misconduct erodes trust in the system. If investors, depositors and policy holders stop believing that their interests are being safeguarded, the entire system quickly comes unraveled at significant costs to society. These costs can arise from failures of financial institutions, a misallocation of economic resources, or simply steep fines that destroy shareholder value and employment prospects for affected workers. Since the global financial crisis, banks have paid more than USD320 billion in fines and legal costs and have been the subject of numerous Government financial inquiries due to misconduct. In Malaysia, in the last 5 years, Bank Negara Malaysia has imposed fines on financial services providers to the tune of RM116 million. A survey conducted by the Bank revealed that almost twothirds of reported losses by banks in 2016 were associated with internal fraud, regulatory noncompliance and operational lapses. We have examined these incidents in some depth. Our observations lead us to conclude that behaviour is very much influenced bycontextual factors such as organisational values, incentives and management responses to misconduct or non-compliance. The rightcontextual setting can exert a powerful influence on individual behaviour. We believe this begins with setting and clearly communicating expectations of desired behaviour. Without clarity on what is acceptable in the first place, it would not be possible to encourage, much less enforce, these expectations. The FSPB serves an important role in this regard through its work in defining and developing codes of behaviour for financial institutions.