November 03. 2020

Bank Culture in 2020 – Regulatory Expectations and Developments in Hong Kong and Singapore


Getting culture and conduct right benefits banks because it reduces their exposure to and resources required to manage regulatory examinations and enforcement and litigation. Good culture and conduct enhances a firm's reputation, boosts staff morale and improves talent attraction and retention. In 2020, regulators in Hong Kong and Singapore continue to strengthen their focus in this area and it is clear that positive bank culture is, in today's world, increasingly a compliance requirement, not just a 'good to have'.

Culture and conduct requirements have become more sophisticated in recent years. In addition to requirements for organisational, remuneration and governance frameworks to strengthen conduct and culture, financial institutions are now expected to monitor global incidents to anticipate and prevent misconduct, ensure the firm's culture and conduct framework is sustainable, and to promote culture efforts across the firm's global footprint. With the Covid-19 pandemic requiring most firms to alter their mode of operations, including remote working becoming the norm rather than the exception, it is important for firms to assess whether this has impacted their culture and conduct. Regulators in Hong Kong and Singapore have continued to push through culture and conduct initiatives over the past 12 months and would be keen to understand how financial institutions have managed culture and conduct issues amidst the pandemic.

This Legal Update outlines recent regulatory developments in this area and includes our top six suggestions on how banks can enhance their culture and conduct-related frameworks.

Regulatory Expectations and Developments

Hong Kong

The Hong Kong Monetary Authority (HKMA) launched a bank culture reform in March 2017 by promoting the adoption of a 'holistic and effective framework' for promoting sound culture in banks.Banks are expected to focus on three pillars: (i) governance; (ii) incentive systems; and (iii) assessment and feedback. Thirty banks then took part in a self-assessment exercise to gauge the progress of bank culture preform in Hong Kong. HKMA issued a report on the outcome of the self-assessments in May 2020.2

In summary, the self-assessment exercise revealed a range of practices under each of the three pillars. The common themes that emerged were:3

  1. Further work is needed to ensure that banks' incentive systems are designed to promote sound culture and prevent incidents of misconduct;
  2. Stronger links are required to connect banks' Hong Kong operations with the culture efforts of the bank's headquarters or upstream entities as well as the bank's downstream operations, as appropriate;
  3. Deeper analysis is expected to benchmark against the findings from the reviews of major overseas misconduct incidents;
  4. More focus is needed to facilitate the undertaking by relevant staff of the continuous professional development under the Enhanced Competency Framework or by other professional bodies to complement the effort of promoting sound culture;
  5. More effort is needed to tackle the key challenge of culture assessment to identify the gaps between current progress and desired culture in banks;
  6. More work is needed in promoting an environment which provides “psychological safety” to encourage bank staff to speak up without fear of adverse consequences; and
  7. Sustained effort is required in driving cultural changes and banks should be mindful of “culture fatigue”.

What is expected of banks going forward? The HKMA has encouraged all banks to:

  • Note the common themes the self-assessment exercise identified;
  • Refer to the range of practices across the industry; and
  • Consider whether such practices are effective in driving cultural changes based on the bank's desired culture, values and behavioural standards.

The HKMA further intends to conduct focused interviews with banks to carry out deep-dives into the incentive systems of front offices in the business of distributing banking, investment and/or insurance products in retail banks. Finally, it will continue to engage with authorised institutions, having already commenced such dialogues with several banks in 2019.4


The Monetary Authority of Singapore (MAS) acknowledges that culture is a key driver of conduct and explains culture as the "shared values, attributes, behaviour and norms in an organisation" that is driven by "both the 'hardware' (e.g. policies and processes) and 'software' (e.g. beliefs and values) in an organisation".5

Recognising the important role that incentive structures play in promoting ethical behaviour within banks that consider customers' interests and prudent risk-taking for long-term financial soundness, the MAS conducted a series of thematic inspections on incentive structures of selected banks in 2018 and issued an information paper on this subject in 2019.6

More recently, the MAS engaged the industry and issued detailed guidelines on accountability and conduct to set out the regulator's approach towards cultures and conducts and the outcomes that financial institutions should work towards:

  • In April 2018 and June 2019, the MAS issued consultation papers on proposed guidelines on individual accountability and conduct.
  • In early 2019, the MAS and the Association of Banks in Singapore established the Culture and Conduct Steering Group to promote sound culture and raise conduct standards among banks in Singapore.7
  • On 10 September 2020, the MAS issued the Guidelines on Individual Accountability and Conduct (MAS Guidelines).8 The MAS Guidelines provide a framework and best practices for strengthening accountability and standards of conduct but they are not intended to be exhaustive or prescriptive. In fact, the MAS warned against the adoption of a 'check-box mentality' in applying the guidelines.

Although smaller financial institutions (those with fewer than 50 people) are not expected to adopt the specific guidance described in the MAS Guidelines, they should still achieve the following five outcomes:

  1. Senior managers are clearly identified.
  2. Senior managers are fit and proper and held responsible for the areas and employees they are in charge of.
  3. The financial institution's governance framework supports senior managers performing their roles.
  4. Material risk personnel are fit and proper and subject to effective risk governance, standards of proper conduct and appropriate incentive structures.
  5. The financial institution has a framework that promotes and sustains all employees the desired conduct.

The MAS Guidelines will come into effect on 10 September 2021. Financial institutions operating in Singapore should use the intervening period to review their internal culture and conduct frameworks against the MAS Guidelines to identify gaps and to consider further enhancements to their frameworks, policies and procedures.

What's Next?

Most, if not all banks have, by now, a basic culture and conduct framework in place that is assessed against, reviewed and updated regularly. What are some enhancements that could be made to further strengthen a bank's culture and conduct framework?

Our suggestions:

  1. Revisit the board of directors' focus on governance and culture. Does the board of directors have a dedicated committee on culture and conduct? Is the bank's conduct risk appetite clearly articulated, communicated, applied and monitored?
  2. Consider risk and conduct in the industry, including non-financial services industries, to identify emerging risks. Incidents involving multinational corporations in other jurisdictions and industries can provide useful lessons on culture and conduct.
  3. Strengthen the quality and availability of data and insights, and develop tools needed to better manage conduct and culture. Dashboards are increasingly used to monitor culture and conduct but their usefulness depends on the quality of the data collected and probative value of the metrics measured. As the HKMA has suggested, it is important to also measure the gap between the present and the target end state for culture and conduct.
  4. Promote diversity and inclusion in the workplace to create a stronger, balanced bank. Banks should promote diversity and inclusion, which has a positive impact on culture and conduct, and demonstrate it through hiring practices. Hiring decisions should further align with the bank's values.
  5. Revisit disciplinary mechanisms for conduct breaches – are they bringing about the right outcomes? The regulators' focus on senior management accountability has brought significant attention to this area within financial institutions. A topic which impacts a much larger proportion of the firm's workforce but possibly receives less attention is the need to carry out a balancing act between disciplining bad conduct without creating a culture of fear of making and owning up to honest and reasonable mistakes.
  6. Manage machine conduct risk. The G30's paper on Banking Conduct and Culture issued in November 2018 highlighted potential unintended conduct outcomes through the increased automation of bank processes and workflow. The paper suggests that firms should, as a first step, identify all machine learning applications currently in use or under development or in their planning stages, and identify the potential sources of machine conduct risk arising from these applications. After that, firms should determine the appropriate roles and responsibilities to manage the risk across various functions and identify any changes required across people, process and technology. Given the increase in automation, machine learning and artificial intelligence, financial institutions should ensure their risk management framework addresses potential conduct risk from technology.

1 Letter from HKMA to the Chief Executive of all Authorised Institutions in Hong Kong dated 2 March 2017 (

HKMA Report on Review of Self-assessments on Bank Culture issued in May 2020 (

3 The common themes are cited from the report referenced in footnote 2.

4 Letter from HKMA to the Chief Executive of all Authorized Institutions dated 22 May 2020 (

5 MAS Information Paper: Culture and Conduct Practices of Financial Institutions issued in September 2020 (

MAS Information Paper: Incentive Structures in the Banking Industry – Fostering Sound Behaviour and Conduct issued in March 2019 (

7 MAS media release, 'New Industry Steering Group to Elevate Culture and Conduct Standards for Banking Industry' published on 22 May 2019 (


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