On 16 March 2021, the Hong Kong Monetary Authority (HKMA) announced (via a circular) that it will conduct a focused review of the incentive systems of retail banks’ front offices in the sale and distribution of banking, investment and insurance products.

20 retail banks have been selected for the review and will be notified individually of the detailed arrangements.

This focused review is part of the HKMA’s bank culture reform (which was first announced in March 2017), and follows the HKMA’s report in May 2020 on its review of banks’ self-assessments on culture (see our bulletin of 29 May 2020 for details).

What will the review entail?

The review is considered important by the HKMA given that incentive systems play a crucial role in driving sound behaviour and affecting customer outcomes.

Further details will be provided to the selected banks individually, but at a high level, the review aims to dive deeply into specific areas of incentive systems, including:

  • how the incentive systems of the front offices are designed and implemented; and
  • how these systems drive behaviours of frontline staff and affect customer outcomes, in particular their role in minimising potential misconduct behaviour and mis-selling practices in the sale and distribution of banking, investment and insurance products.

An external consultant will undertake a range of activities with the selected retail banks, including:

  • employee surveys;
  • focus group discussions;
  • interviews with employees; and
  • review of documentation.

The HKMA plans to share with the industry the insights and common practices identified in the review and consider the need for any further guidance. It may also follow up with individual banks where issues are identified in the course of the review.

What other steps are the HKMA taking or has planned to take in relation to bank culture?

The HKMA has been engaging in culture dialogues with senior management and/or board members of authorised institutions since 2019 to gather insights on their approach to culture.

It will continue to gauge the progress of bank culture reform in Hong Kong and explore other culture initiatives, taking into account overseas experience and emerging themes that may arise.

 

Hannah Cassidy
Hannah Cassidy
Partner, Head of Financial Services Regulatory, Asia
+852 2101 4133
Natalie Curtis
Natalie Curtis
Partner
+65 6868 9805
Gareth Thomas
Gareth Thomas
Partner
+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Senior Consultant
+852 2101 4122
Valerie Tao
Valerie Tao
Professional Support Lawyer
+852 2101 4125