This stands alongside various other efforts for training and standard-setting, including those by AIF, ICLIF, SIDC, FIDE Forum, PPKM and FSPB. I wish to take this opportunity to specifically commend the AIF and FSPB for their initiatives, including today’s event. These draw the much needed attention by the industry to this important subject. The system of values affecting behaviour does not only depend on the sector-wide legal and regulatory frameworks and the vibrancy of the professional community. Also, of crucial importance, is the role of the board and senior management in each organisation. As has been often repeated, these leaders set the tone from the top. This is established through official decisions and formal statements, including the corporate values and various codes of conduct. However, their role goes much further than that. More than their words, the board and senior management determine the prevailing values of the organisational ecosystem through their attitudes, actions and decisions – especially those relating to professionalism and integrity. Do they give the impression that the ends always justify the means? How vigorously do they question sudden surges in a business unit’s profitability? Are they willing to overlook ethically questionable actions so long as the firm is technically within the bounds of the law? How do they react to ethical failures and misconduct? How does compromising the policies of the organisation affect bonuses and promotion? Apart from the board and senior management, the system affecting each organisation is also determined by the shareholders.

The capitalist system depends on owners of capital to promote sustainable value creation through market discipline. Is it simply short-term profits that matter? Are there other social or environmental purposes that must be safeguarded? To this end, the Securities Commission’s Malaysian Code for Institutional Investors articulates the stewardship 3/5  BIS central bankers' speeches  role that shareholders ought to play. Ultimately, shareholders need to clarify that – we need more than just the bottom line – immediate profit is not everything. (b) Situation Let us move on to the second element – the “situation”. The system of values creates and maintains various situations. The situation represents the environment or immediate setting in which financial industry professionals operate. This is a broad subject. Today, I wish to focus on two types of situational incentives. Firstly, remuneration structures. And secondly, the attitudes toward speaking up. Remuneration plays a significant role in influencing behaviour, including ethical choices. Admittedly, the task of designing and implementing a remuneration system to encourage professionalism and integrity is not straightforward. However, the intuition is simple and attainable: financial institutions should avoid the folly of rewarding A, while hoping for B. In other words, we cannot hope for or expect ethical behaviour so long as we continue rewarding people for acting otherwise. In this regard, the Bank is currently phasing in requirements consistent with international standards to align remuneration with prudent risk-taking – with a focus on material risk takers.