Jonathan Davidson, Director of Supervision – Retail and Authorisations at the Financial Conduct Authority (FCA), made some pertinent comments about culture and conduct within financial services firms in a recent speech to the City and Financial Summit.
Mr Davidson began by saying he wanted “to talk about culture and conduct in financial services through the lens of the Senior Managers and Certification Regime or, as I like to call it, the Accountability Regime.”
By referring to it as the Accountability Regime, the FCA director is highlighting how the regulator will seek to hold senior individuals responsible when their firms act inappropriately. He added that “the Accountability Regime is directly targeted at the culture of firms”, and that culture was linked to “the strategy and business models of firms.”
Mr Davidson added “that business models often create commercial incentives for behaviours that lead to poor outcomes for consumers.” As an example, he said that the FCA had “found repeatedly in several sub-sectors of consumer credit that firms were making profits on the back of irresponsible lending to consumers who could not afford to repay the debt.”
He went onto say there are four ways that a firm’s culture can be measured:
• Whether the firm has “a clearly communicated sense of purpose and approach”
• The ‘tone from the top’ – what example are senior management setting for their staff when it comes to conduct?
• The governance processes firms have in place to manage conduct risk
• The incentive schemes used by firms – are staff for example rewarded via bonuses and commission structures to act contrary to customers’ interests?
Whilst much of his speech focussed on the responsibilities of senior managers, Mr Davidson highlighted that the Regime sets out five Conduct Rules that will apply to all staff at all FCA authorised firms. These high-level rules will require individuals to:
• act with integrity
• act with due care, skill and diligence
• be open and cooperative with regulators
• pay due regard to customer interests and treat them fairly
• observe proper standards of market conduct
Returning to the responsibilities of senior managers, Mr Davidson spoke of the need for “clear lines of accountability between a decision made and the senior manager who made it or oversaw it.” He reminded his audience that a requirement of the Regime will be for every senior manager to have a Statement of Responsibility that sets out what they are responsible and accountable for. A copy of this statement must be provided to the FCA whenever a senior manager applies to be approved, or whenever a major change to their responsibilities occurs.
His closing remarks addressed the advantages of the new Regime for authorised firms, as well as highlighting how every firm will be required to adopt the Regime. Mr Davidson commented:
“I hope that the accountability regime will be a good thing for firms as well as customers and markets.
“It is the antidote to decision-making by default, fostering clear accountability and thinking. I am hopeful. Firms who have already applied this regime tell me they are already feeling its positive effects.
“By extending the regime, we are also extending this new approach, this new mindset, across the whole industry.
“And I hope that, whether you’re a credit broker in Carlisle or an international investment manager in Canary Wharf, you will agree that having the right culture is just good business.”
The Senior Managers & Certification Regime, or the Accountability Regime, will apply to all authorised firms from March 2018.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.