This topic might be less familiar to some—the terms are newer and the assessment frameworks are less developed—but I believe it is critically important. Both the official sector and many of your firms have put considerable emphasis on improving corporate cultures and reducing misconduct risk, but we continue to see striking cases of misconduct both in the U.S. and abroad. Clearly, more needs to be done. Many of the insights I will share today are drawn from interactions with industry participants and members of the official sector through outreach and industry conferences and workshops on the topic, including events hosted by the Federal Reserve Bank of New York. 2 I am confident that continued commitment and collaboration will contribute to better outcomes in this vital area. Before proceeding, I’ll emphasize that I am speaking for myself and not the Federal Reserve Bank of New York or the Federal Reserve System. Influencing Culture from Multiple Perspectives Prudent risk management is a fundamental aspect of the business of banking, which means it is a critical factor in the effective oversight of banks. Supervisors focus on financial resilience by requiring firms to maintain sufficient capital and liquidity and emphasize operational resilience by promoting effective corporate governance, risk management, and recovery planning.3 In my view, misconduct risk—defined as the potential for behaviors or business practices that are illegal, unethical, or contrary to a firm’s stated beliefs, values, policies, and procedures—is an integral part of an effective risk management framework.

4/6  BIS central bankers' speeches  As we continue to see the impact of technology and big data in other parts of financial services, one interesting question is how innovation and enhanced technology will support the measurement and management of culture. The potential of big data analytics to revolutionize approaches in many areas of business has been talked about for years, and is now beginning to become a reality. For example, we might see firms routinely leverage broader data to make stronger predictions about potential misconduct risk, which could be useful to help focus scarce compliance resources. Some may view the official sector as an impediment to the adoption of new technologies, but I don’t think that needs to be the case. In the context of compliance risk management in the U.S., the five federal banking agencies recently encouraged financial firms to explore innovative approaches to meet their compliance obligations related to money laundering and further strengthen the industry against illicit activity.15 Similarly, in the U.K., Rob Gruppetta, head of the Financial Crime Department at the Financial Conduct Authority, has spoken about the “balancing act” the FCA faces as a regulator trying to encourage progress and innovation while also mitigating danger and imprudent risk-taking. He points out that data from new technologies has also allowed the FCA to be more consistent, effective, and risk-based in its supervisory approach toward conduct risk.16 This leads to a question about how firms can use similar tools and techniques to mitigate misconduct risk and promote healthy cultures.