Financial safety

How Banks Are Using Behavioral Science to Prevent Scandals

Efforts to deal with corporate malfeasance, employee misconduct, and ethical failings are falling short. Nowhere is this more visible than in the financial sector. More than $400 billion has been paid in fines since the 2008 financial crisis. But one corner of the industry offers hope: It is using behavioral science tools to identify risky behavior early on.

Some of Europe’s largest banks — ING Group and ABN Amro in the Netherlands and RBS in London — have created behavioral risk teams composed of professionals trained in organizational psychology, anthropology, forensics, and other disciplines. Each team has a direct reporting line to the chief audit, compliance, or risk executive. Teams also have the independence and autonomy to conduct companywide reviews and assess business units in which they perceive behavioral risk.

Let’s look at how the RBS team operates. It engages in “deep dive” reviews of areas that warrant attention, zeroing in on small groups (fewer than 500 members) selected according to input from internal and external stakeholders, including members of the internal audit, compliance, human resources, and legal teams. It searches for in-depth, granular insights specific to certain “subcultures” where ethical lapses may be occurring.