Banks should be able to respond promptly to material developments such as rapid growth, an excessive concentration on funding sources, ineffective asset-liability management, misconduct incidents, changes in the economic environment (such as policy normalisation or economic growth), or their ability to consider stress-test scenarios. 2  Non-banking financial institutions. 3  Hernandez de Cos, April 2023 https://www.bde.es/bde/es/secciones/prensa/intervpub/Discursos_del_Go/gobernador--bis-innovation-hubeurosystem-centre---regtech-and-suptech-in-the-context-of-cryptocurrencies-and-decentralised-finance-.html. 4 https://www.bis.org/bcbs/publ/d328.htm. 2  Based on our experience in the SSM, banks have improved their governance structure and design in recent years. However, challenges remain in implementing these changes and making them effective. The thematic review conducted in 2015 was the first horizontal exercise that led to tangible improvements in the design of banks’ management bodies. However, efforts still need to be made to improve boards’ oversight role and challenging capacity. Progress has been made in some areas such as board composition (collective knowledge and diversity), self-reflection on board effectiveness and the quality of board documentation and minutes. However, some challenges remain, particularly with regard to boards’ oversight and challenging capacity, insufficient internal suitability policies for the recruitment and assessment of board members, the inclusion of an appropriate risk perspective in discussions and decision-making, boards’ collective skillset and the degree of formal independence within the board. Governance is an area where supervisors pay a lot of attention, because we are aware of the importance of a robust governance structure and functioning. An example of this is that 7,371 findings have been raised in this area since the SSM was created, of which 1,303 remain open.

I think it’s pretty safe to say – after one reads the newspaper on any given day – that we may be at a low point of confidence and trust between the public and the financial sector – with a series of high profile events over the past 18 months that raise issues of both basic compliance with laws and regulations and of governance and culture in firms and in the system more broadly. Culture can be a complex topic – and I know it’s one that firms are spending a lot of time thinking through and trying to figure out how to ensure a strong culture. As we are thinking about it, we’re asking ourselves a series of questions – and I thought I’d share a couple of these with you as food for thought on this topic. Culture starts at the top of the organization – “the tone at the top” •  Do the directors/CEO set the right tone for behavior at the organization? •  Is there effective challenge and debate at the board meetings/committee meetings? BIS central bankers’ speeches  5  •  Do personalities interfere/get too big within the company for effective risk management? •  What’s the dialogue like between supervisors and the firm? In a strong risk culture, incentives within the firm set the right expectations for behavior. •  How are audit and supervisory findings handled? •  Does the performance management system reward both good behavior and punish bad behaviors or lapses?