On the heels of FINRA's firm culture survey, Gary Barnett, the Deputy Director of the SEC's Division of Trading and Markets, echoed FINRA Chairman Ketchum's remarks about firm culture. Director Barnett contrasts past, pre-crisis risk management with post-crisis "conscious intentionality."1 Director Barnett asserts that "it's helpful to think about 'culture' as part of risk management – a sort of mitigant to all risks in that it should tend to bolster a compliance culture generally, but more specifically as a support for conduct risk."2 He further argues that to make the culture "real," an institution has to "walk the walk" and "talk the talk."3
So how should an institution "walk" and "talk" in this context? Director Barnett answers as follows: "[t]he institution's practices in hiring, compensation, promotion and discipline have to be consistent . . . and the institution has to monitor and surveille for, among other things, behavior that is inconsistent with culture and which must be dealt with appropriately to support consistency with the culture."4
Director Barnett's remarks highlight cultural themes that expand beyond compliance. He connects risk management with culture and asserts that "conscious intentionality" is required to manage risk. Although undefined, his reference to "conscious intentionality" echoes FINRA's proposed application of behavioral psychology to the evaluation of firm culture. In his remarks, Director Barnett provides the beginning of a bread-crumb trail for firms to follow in their efforts to achieve and maintain a good culture. Firms should begin to review their hiring, compensation, promotion, and discipline practices, policies, and procedures to assess whether a good culture exists, consistent behavior has been sustained, and risks have been properly managed. But where does the bread-crumb trail lead from this point?
The regulators have yet to provide further guidance. However, crumbs from the trail are evident. Director Barnett links risk management, culture, and governance, and, in particular, cites culture as important in managing conduct and mitigating bad choices. At the recent FINRA Annual Conference, FINRA's Chairman Ketchum is even more explicit, stating that "FINRA counts culture as a factor that influences a firm's risk profile" and may influence the "probability or severity of an enforcement action."5
Clearly culture is serious business. Few would debate the importance of firm culture in driving behavior. An open question is how behavioral psychology can be applied to evaluating firm culture and, more importantly, how its application will influence industry regulators. For example, do firm practices focused on short-term performance versus long-term investment mean the firm should have a higher-risk profile? Investors, industry participants, and regulators may each answer this question differently. However, when the probability or severity of an enforcement action is at stake, objective standards applied pursuant to a recognizable methodology, supported by empirical data, would at least provide the industry with a measurable framework for managing risk in this regard.
 Remarks of Gary Barnett, Deputy Director, Division of Trading and Markets, at the ISDA Annual Legal Forum in New York, June 16, 2016, p. 2.
 Id. at p. 3.
 "Commerce and Compliance: It's Not a Culture War," remarks of Richard G. Ketchum, FINRA Chairman and Chief Executive Officer, 2016 FINRA Annual Conference, May 23, 2016.