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David B. Lourie

Publication Date

2-27-2026

Document Type

Article

Abstract

This Article advances a normative claim: U.S. financial regulators must move beyond primarily adversarial, enforcement-driven models and adopt behavioral supervisory tools—particularly elements of culture assessments—to proactively help guide ethical firm conduct and mitigate systemic risk. Importantly, the proposal here is incremental and resource-efficient. Many recommendations place the onus on firms to assess and demonstrate their culture, while regulators set expectations, review outputs, and selectively verify findings. The framework proceeds in progressive stages—beginning with voluntary, partnership-based initiatives, moving toward light-touch integration within existing examinations, and scaling only where persistent governance weaknesses or systemic risks warrant closer attention. This tiered approach reflects U.S. regulatory principles of proportionality and risk-based supervision, ensuring that culture oversight develops gradually rather than through sweeping structural change.

In this sense, culture supervision is feasible within existing statutory authority and scalable to large, complex markets. It contributes to legal scholarship on regulatory design, compliance, and corporate and behavioral governance by offering a novel, legally grounded framework for incorporating culture assessments into U.S. financial oversight. Crucially, it demonstrates that culture-focused supervision is both legally grounded and essential to address today’s regulatory challenges.

This argument also complements a rich body of legal scholarship examining how organizational culture, governance failures, and incentive systems profoundly shape ethical conduct within firms. Scholars have illuminated both the importance of fostering ethical organizational cultures and the limitations of traditional, rules-based compliance models. Yet while this work has deepened our understanding of organizational culture and compliance risks, far less attention has been paid to how financial regulators themselves can systematically evaluate and strengthen organizational culture as part of routine supervision, particularly within the distinctive legal and institutional environment of the United States. This Article addresses that gap by offering a novel and comprehensive legal framework to adapt global culture supervision practices to U.S. financial oversight. In doing so, it provides a pragmatic, behaviorally informed roadmap for enhancing regulatory effectiveness and remains firmly grounded in the leading legal scholarship on compliance, governance, and organizational culture.

This Article makes three principal contributions. First, it develops a novel, behaviorally informed model of financial supervision that reimagines how regulators can evaluate and influence organizational culture within existing statutory authority, moving from reactive enforcement to preventive behavioral oversight. Second, it grounds this model in comparative insights and fieldwork from leading global regulators, translating those practices into a scalable and legally feasible framework tailored to U.S. institutions and markets. Third, it contributes to legal and compliance scholarship by reframing organizational culture as an assessable dimension of regulatory effectiveness—one that links corporate governance, behavioral science, and compliance theory within a unified, culture-informed supervisory approach.

This Article proceeds in six Parts. Part II defines what culture assessments are and are not, clarifying their differences from traditional audits and what they aim to measure. Part III surveys global regulatory approaches to culture supervision, including the tools and methodologies employed by leading financial regulators in the Netherlands, U.K., Australia, and Canada. Part IV analyzes the U.S. model of adversarial legalism, exploring its institutional limitations and the structural barriers it poses to behavioral supervision. Part V addresses common criticisms of culture assessments, including concerns about subjectivity, enforceability, and overreach. Part VI proposes a series of pragmatic and scalable reforms to integrate culture assessments into the U.S. financial regulatory framework, tailored to the constraints and realities of the American system. Part VII makes the case for culture assessments as a light-touch, forward-looking strategy that aligns with U.S. regulatory values of flexibility, transparency, and risk-based oversight. It further outlines the practical benefits that such assessments can offer to regulators, firms, investors, and the public.

The Conclusion situates this argument within broader conversations about the law’s preventive and strategic functions, showing how culture supervision can help build a more ethical, adaptive, and intelligent regulatory paradigm.

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