On July 12 2016, Jonathan Davidson, Director of Supervision – retail and authorisations at the Financial Conduct Authority (FCA) spoke at the 2nd Annual Culture and Conduct Forum for the Financial Services Industry. He emphasised a number of important points regarding the regulator’s role in supervising the conduct and culture of firms.
He began by saying that:
“The role of all leaders is to encourage a culture of personal responsibility and impress upon all staff the value of good culture to the health of the firm and the financial services industry more widely.”
Firms should also take careful note of the way the speaker defined ‘culture’ within firms. He described this as:
“The typical, habitual behaviours and mindsets that characterise a particular organisation. The behaviours are the ‘way things get done around here’; they are the way that we act, speak and make decisions without thinking consciously about it.”
Mr Davidson said he believed cultural failings were a major factor in episodes such as the payment protection insurance mis-selling scandal and the manipulation of LIBOR and the foreign exchange markets, saying that “some in the financial sector had mindsets that divorced themselves from the impact of their actions on their clients.”
The FCA director said his organisation measured culture by looking at behavioural patterns that exist within firms, and then considering what management is doing to shape these behaviours.
Next, he listed four areas in which senior management can determine the culture of an organisation:
• ‘Tone from the top’ – is corporate culture regularly discussed at length in board meetings? What steps are management taking to encourage staff to take personal responsibility for their actions?
• The firm’s policies and procedures – here cited the example of remuneration structures that encourage mis-selling as an example of a poor culture
• The narratives being circulated within the firm – by ‘narratives’ Mr Davidson said he meant “the tone of strategies, business plans and mission and value statements.”
• The capabilities of an organisation – education is required if firms and staff are to alter their behaviours
Mr Davidson then turned to the Senior Managers & Certification Regime (SM&CR), which will be implemented in all areas of financial services in 2018, and which is already in force in the banking sector. He said that “the regime provides clarity around who has responsibility for what and ensures they can do the job”, before adding “we want senior individuals to feel genuine responsibility, and be held accountable for, the decisions they make and oversee.” He said the FCA was “on the whole … pleased with how firms have approached the regime.”
The three ‘essential ideas’ underpinning SM&CR that he mentioned were:
• That senior managers were accountable for their own personal decisions
• That senior managers took reasonable steps to ensure decisions made by staff in their business area were appropriate
• That senior managers understood they needed to ensure that staff in their area of responsibility met the necessary standards of conduct and competence
Mr Davidson concluded by saying:
“Culture and behaviour will change permanently for the good if it is chosen and not imposed, if the industry itself takes responsibility for delivering the standards it aspires to and that society is entitled to expect.”
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.