Supervisors on Supervision Feedback
- Mar 9
- 5 min read
On November 17th 2025, Starling Insights launched a new Deeper Dive report, “Supervisors on Supervision” following a global stock-take exercise that received input from many senior financial sector supervisors worldwide. The study collected emerging views regarding reform efforts aimed at culture, risk governance and supervision.
The report’s release as a Public Exposure Draft was intended to solicit feedback from a variety of industry stakeholders to inform a Final Report, due to be released in the second quarter of 2026.
This article is a copy of my response letter; that included feedback to the “Supervisors on Supervision” document and is structured in 3 sections:
An overall view, summarized in the main body of this letter;
Included as Appendix 1, an extract from my previous response to a UK Government “Call for Evidence on Financial Services” from December 2024. Much of the content of which remains relevant to this response;
Included as Appendix 2, responses to the specific “Questions for Comment”, as contained in the Supervisors on Supervision report.
Overview
I applaud the work of Starling Insights to progress a collaborative industry effort to focus Supervisors and Banks on the importance of organizational culture as a matter of conduct and prudential concern.
As the report noted, the GFC, the events of 2023 and a raft of other conduct and resilience issues have continued to highlight the criticality of understanding culture and the factors that influence and shape it.
Nonetheless the approaches and focus of Supervisors have been slow to develop, and the efforts to address culture as a matter of Supervisory concern remain piecemeal and lacking consistency and rigour.
Therefore in revisiting the topic, it will be vital to address not only the continued importance of culture, but why, despite overwhelming evidence of its criticality, the focus and resources at both regulatory and firm level are often not forthcoming.
As 2023 showed, the risks can be both existential to a bank and systemically important, and yet momentum for a refreshed approach to a deeper behavioural understanding fades quickly.
In re-addressing the approach it is therefore vital to recognize the factors that lead to this “blind spot” and that continue to delay progress. Otherwise any industry effort, however well intentioned, risks falling prey to the same powerful forces that have hindered focus and improvement previously.
Behaviour as a “meta” risk
A key part of this is that culture and behaviour are unique as a bank and wider industry risk (and compliance, conduct, resilience and performance) challenge. As the behaviour of all actors, both individual and organizational, shape how they seek to address and understand “behaviour”. In this way it is a “meta” risk, where the area you are trying to study is both influenced by, and influencing, the approach you are taking to study it.
This circular dynamic is distinctive for behavioural risk and culture. Other challenges, such as credit risk, market risk, liquidity risk, cyber security and technology risk are perceived as technical, and not directly confronting to a “sense of self”, and to our own perceptions of (and over-confidence in) what drives human behaviour, action and decision making.
Culture as a complex domain
As Sir John Kay noted in the preamble to the report, culture is not constructed, it is ‘emergent.’ It arises from the interactions between participants and from what is repeated, reinforced, and rewarded in a myriad of informal daily activity.
Understanding and embracing this inherent complexity is vital in how we seek to tackle culture as a matter for executive and Supervisory effort.
However, bank executives, boards, regulators and governments (indeed all humans) have a strong attraction to clear causal chains and for compelling linear narratives.
As such we often err towards explanations that are mainly technical (the system failed) or personal (an individual was at fault), rather than embracing the “messy middle”, where there are multiple influencing and confounding factors and emergent patterns.
The topic of “complexity” may seem esoteric or unnecessarily intricate, but the gravitation pull towards inappropriate mechanical and (easily) repeatable solutions, and to frameworks, taxonomies and (often ill-informed) measurement needs to be recognized.
If we take one set of established solutions derived from STEM, finance, accountancy and law, in relation to linear or complicated business challenges, and assume it still applies to a complex behavioural domain then meaningful progress will be stymied.
It may lean into our deeply human desire for order, control and narrative, but will be incomplete at best, and potentially misleading or illusory.
It is for these reasons that it is imperative that approaches to culture are best addressed through developing core behavioural capability, competency and expertise (in both the supervisors and the banks) and not through a programmatic lens or using the limited toolset of the past.
Behavioural Capability
Randal Quarles noted in the opening letter to the report that:
“Applied behavioural science can now propose for us rigorous frameworks with which to assess behavioural norms and group dynamics. And advances in artificial intelligence, data science, and social-network analytics offer the possibility of deriving predictive, transparent, and replicable measurements that anticipate organizational performance outcomes. These developments move culture assessment away from rhetoric and closer to science backed evidence, helping both to sharpen and to discipline supervisory judgment”
Whilst I agree that applied behavioural science and psychology are key components to a more informed and predictive approach to culture we equally need to remain ever vigilant that our desire for:
“shared frameworks and established measurements that allow us to ‘show our work’ in culture risk governance and supervision”
..does not nudge us once again into a simplified and reductionist approach that fails to take into account the context of different firms. The gravitational pull towards a straightforward, but misleading, solution once more exerting its damaging influence.
As John Kay states, culture is deeply path dependent and highly is context driven. And
“we must learn from disciplines long ignored in prudential supervision; anthropology, psychology, sociology, the study of complex systems and of ecological cascades. We must also invest in new capabilities: behavioural diagnostics, qualitative analytics, and narrative assessments. These are not ‘soft’ tools. They are the instruments of forward-looking governance”.
I fully endorse this statement and it is incumbent on both the Supervisors and Banks to build out these tools, approaches and capabilities.
Supervisors Culture - Physician heal thyself
If organization culture and a mature approach to its assessment are important to regulated firms then they are equally important to the Regulators.
Randal Quarles highlighted that:
“ Progress in this direction will depend on conditions of candour within supervisory institutions themselves. Supervisors have urged the firms they oversee to build cultures that protect dissent, reward curiosity, and make truth speak-able. If this is good for firms, so too is it good for supervisory agencies; the public sector must demonstrate readiness to take its own medicine”.
I agree that it is essential that the Supervisors recognize the importance of their own culture and that they build their own capabilities and expertise that can be applied not only to those firms that the supervise, but also to themselves.
Having these skills is vital to the credibility of Supervisors, in being able to ask the right questions of the firms they regulate, and in being able to understand and encourage best practice.
It is also critical to the health and resilience of the financial services sector, to systemic risk and from there to the wellbeing of wider society.
Further Details
Further details in line with the specific Public Exposure Draft Questions are as detailed in the attached Appendix 2 to this response.
Please note that I am happy for all my feedback to be publicly attributable and that I write in both my personal capacity and in my role as Director of Behavor Ltd, a consultancy that focuses on behavioural risk in Financial Services.
Yours faithfully,
David Grosse
Director
Behavor Ltd
APPENDIX 1- prior response to UK Government Call for Evidence
Please see prior article here:
APPENDIX 2 – Supervisors on Supervision Questions and Answers
Please see the Appendix to the accompanying article here:
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