the measure of all worth ” in fault lines : how hidden fractures still threaten the world economy, 2010. bis central bankers ’ speeches • in a global survey of financial sector executives by the economist intelligence unit, more than half the respondents felt that their career progression would be difficult without being “ flexible on ethical standards ”. • if you look at the email and chat room messages between traders involved in the rigging of financial benchmarks, they betray a lack of any sense of guilt or wrongdoing. • in fact, traders were congratulating and complimenting each other on their manipulation. • and when subsequently questioned by their superiors or regulators, they offered an array of self - justifications, chief of which is “ everybody does it ”. but everybody does not do it. i believe the vast majority of people working in the financial industry are committed to serving their clients or customers fairly and with integrity. but the unethical actions of a few have undermined trust and created instability. reform of the financial industry will not be complete until this issue of trust and ethics is addressed. this requires “ getting the culture right ”. and by culture, i mean the shared values, attitudes and norms that guide actions. there is increasing international regulatory guidance to improve risk governance and align compensation schemes with long - term sustainability and customer interests. this is necessary but not sufficient. there are limits to what externally imposed rules can do to promote the right values in financial firms. • because culture develops from within a firm, it invites a certain resonance from the members of that firm – in a way that will be difficult for an externally imposed set of rules to achieve. • for the same reason, the behavioural norms that a firm ’ s culture and value system promotes are more amenable to internal governance and self - policing than rules that rely on external enforcement. in short, rules tell us what we can do, but values tell us what we should do. a mechanistic compliance with rules cannot be an adequate substitute for an internalised sense of responsibility and basic morality that a finance professional owes to his client or counterparty. how can we build a culture of trust and strong values in the financial industry? we need an ecosystem to do so – with a role for regulators, the industry, and most important, the firm itself. what can regulators do? first, the role of regulators. the international regulatory community has been intensifying efforts to ensure that financial institutions foster a sound risk culture and conduct themselves

it has been observed that in some arcs, there were long vacancies in the post of chairperson along with instances of chair of the audit committee ( acb ) also chairing the board meetings as well as a non - independent director chairing the board meetings, contrary to the extant framework. these things only go to show that the governance has not been receiving the required attention. diverse expertise coupled with independence is necessary for a competent board. a board equipped with independent directors with varied backgrounds, skills and experience allows for richer discussions leading to informed decision making. while non - independent directors may take care of certain interests, independent directors 2 / 4 bis - central bankers'speeches bring an unbiased perspective and play a key role in safeguarding from conflicts of interest. however, we have come across instances where there were not enough independent directors on the board or a sufficient number of independent directors did not attend board meetings. clarity of roles and responsibilities between the board and management is essential in ensuring the smooth functioning of the organisation and avoiding dysfunction. while the board is intended to give a strategic perspective and exercise broad oversight over the management, the executive management is responsible for running the day - to - day operations. the md & ceo is expected to function under the overall supervision, direction and guidance of the board and at the same time, maintain independence in performance of his or her duties. it is also important that the sub - committees such as the audit committee, nomination and remuneration committee, etc. are duly constituted and function in accordance with the statutory and regulatory requirements. prior preparation and diligence by board members is a sine qua non for effective governance and decision making by the board. i would urge board members to insist on receiving the agenda papers well in advance and thoroughly reviewing them. rather than merely going through summaries or presentations made by the management, i would request directors to meticulously review rbi supervisory letters and inspection reports, external audit reports as well as the reports provided by the internal assurance functions as they would provide valuable insights into the management's performance. business model of arcs the arc framework was intended to allow loan originators to focus on their core function of lending by removing the sticky stressed assets from their books. it also envisioned the revival of businesses through resolution of viable and productive assets. a review of the data indicates that one - time settlements and rescheduling of debt are the predominant measures of reconstruction employed by arcs. arguably, these measures could have been taken