Compliance in the financial sector
with evidence-based solutions for ethical behavior
Brain and behavior insights for Compliance
Especially since the 2008 crisis, financial institutions are under constant regulatory scrutiny and carry a heavy responsibility regarding ethical behavior and conduct. We worked with a leading financial institution in the Netherlands to increase their compliance and anonymized this case in line with their policy.
Taking these responsibilities head on, our client houses a center of expertise (CoE) dedicated to behavior. We teamed up with their in-house experts to provide specialized neuroscience expertise and co-create behaviorally informed solutions to promote ethical conduct and behavioral compliance on a global scale.
“Neurofied has given us surprising insights and practical tools to understand and mitigate Behavioral Risk. Inspiring session and recommended for anyone who wants to learn something about the psychology of behavior in organizations.”
– Senior Expert Behavioral Risk & Change
The behavioral scientists at the financial institution, created a risk management framework that enables instant root cause analysis the minute an incident occurs. This helps them get to the bottom of complex issues by uncovering underlying behavioral drivers and incentives that might lead to misconduct.
After creating a clear understanding of the problem and its cause, comes time to craft effective solutions. However, designing solutions aimed at complex behaviors of thousands of employees proves to be quite a challenge. To complement in-house skill with external expertise, Neurofied provided a strategic solution session.
Approach to increasing compliance
Behavior is a function of people and environment. This makes factoring in employees’ professional context essential in designing effective solutions. As such, we set out to ideate solutions that create an environment in which employees are encouraged to make ethical decisions.
We were asked to build upon existing compliance frameworks that zoom in on the underlying drivers of ethical behavior like transparency, role modeling, and accountability. Each of these drivers is linked to a set of behaviors that either promote or demote conduct.
In our approach to solution ideation, we identified which unconscious barriers or biases were likely to get in the way of desired conduct. By designing interventions that empower employees to overcome these unconscious biases, we helped put the conduct drivers in practice.
In a strategic solution session with the CoE, we presented and discussed a set of interventions for their solution toolkit. We translated the behavioral insights we identified into concrete guidelines for implementation in multiple conduct areas:
1. Role modeling & storytelling
Role modeling by leadership is essential in promoting ethical conduct. One way to do this is by communicating a clear and consistent narrative that helps employees turn good intentions into actual behavior. The Public Narrative intervention helps leaders do this at scale.
By incorporating elements of urgency, unity and empathy into your message, the Public Narrative technique helps leaders create trust and emotional connection with their audience, which enables lasting changes in their behavior. We suggested leadership to structure their public narrative according to the 30-3-30 rule, in which a narrative can be communicated in 30 seconds, 3 minutes, or 30 minutes, depending on the situation and context.
2. Transparency through think-write-share
Good conduct heavily depends on transparency in people and processes. Our brains however, are hardwired to avoid risks & losses, and to value group consensus over disagreement. Left unaddressed, these unconscious biases make true transparency impossible.
To mitigate these risks, we proposed to implement a think-write-share protocol whenever transparency needs to be increased. When important issues are addressed in meetings, stakeholders are asked to first think their reasoning through, and write down their argumentation. Only then are they asked to share their opinions on the issue. The think-write-share takes risks like groupthink, authority bias, and information cascades out of important meetings, and promotes trust and transparency.
3. Personalized accountability
Moral accountability training is standard procedure in most financial institutions, but individual differences in accountability style often kills the effectiveness of these types of training. People can be roughly categorized as self-enhancing (I’m better than average) or self-effacing (I’m worse than average) when it comes to accountability styles. It’s crucial that moral accountability training is tailored to these styles.
We proposed to split their moral accountability training programs into two tracks: principle-based and rule-based. New hires that HR assess as self-enhancing, are encouraged to follow a principle-based training program, which emphasizes that their standing could be jeopardized if they were to conduct themselves in an unethical manner. Employees assessed as self-defacing are encouraged to enroll in rule-based training which accentuates the established sanctions for violating conduct in various situations.
By tailoring training tracks to individual differences, financial institutions can increase training efficacy and boost accountability across the organization.
The next step is experimentation. By testing, measuring, optimizing, and scaling interventions, financial institutions can find out which solutions work best in their unique context. We will keep working on behaviorally-informed solutions for ethical behavior across the financial sector.