The FCA and the Culture Thing

The Financial Conduct Authority (FCA) has been concerned about the culture of financial institutions for some time and ‘culture’ has been a topic on the agenda at visits and review meetings.  Working out quite what the FCA means by ‘culture’ – and what it expected – has been a little harder to discern, but a recent discussion paper (DP 18/2 – Transforming Culture in Financial Services, March 2018) has shed some light on that and my view is that it’s one of the most significant documents issued by the FCA in the last few years.

DP 18/2 is a series of essays by academics, those in banks and supervisors from outside the UK, with an introduction and overview by the FCA.  But this isn’t just an attempt to look at aspects of culture; it’s putting the topic of ‘culture’ front of stage, reinforced by speeches by FCA staff in recent weeks banging the culture drum.  Here are some thoughts on DP 18/2.

1          It’s clear that culture is the big topic of the moment, the lens through which many other topics will be considered (for instance, affordability in a recent speech).  We’ve been here before, with TCF and conduct risk, but ‘culture’ is more wide-ranging than either of those initiatives and will impact more areas of the business.

2          There’s broad agreement about what a culture is, along the lines of ‘how we do things’ or ‘what people do when nobody’s looking’.  Those are the reference points, but firms will have to decide for themselves what ‘culture’ means for them, what their culture should be and what a ‘good’ culture will look like.  It’s fairly clear that a list of values is, at best, a starting point.

3          Conduct and culture are seen as going hand-in-hand and behaviour is seen as central to conduct; the FCA is, of course, the conduct regulator.  Expect to hear more about what drives behaviour and what firms can do to promote and assess good behaviours.

4          Forget any notion that this is a topic for Compliance; ‘culture’ is something for the whole firm and a lot of the action points are relevant to those at the customer interface and the HR function.

5          There are extensive references to remuneration and its impact on culture.  Expect to hear more – much more – about remuneration and culture and consider what you can do to align the two.

6          Not surprisingly, there are also extensive references to accountability, with the senior managers’ regime and the certification regime seen as tools to promote and ensure a good culture.  Expect to see more questions for senior managers at FCA visits, interviews and review meetings about the firm’s culture and how any prescribed responsibilities fit with the culture.  Senior managers should also proactively demonstrate to the FCA that the firm has a good culture – and that they promote it – at visits, review meetings and interviews.  Expect more requests for the FCA to meet junior staff to allow assessment of the culture across the firm.

7          Whistleblowing (generally referred to in the DP as ‘speak-up’) receives considerable attention, along with the importance of staff being able to challenge, air their views and point out where something might not be appropriate or might be unethical.  Consider whether your whistleblowing (or speak-up) arrangements need review and a fresh push of activity to bring them to staff attention.

8          Interestingly (and oddly), risk gets little mention, although a poor culture will inevitably give rise to risks (particularly conduct risk).  Consider whether you should have a culture risk and, if so, what that would include and how it would be assessed, managed, monitored and reported.  Also consider whether the Risk Committee should require reports on culture.

9          There are arguments for and against measuring culture, but indications are that the FCA is veering in the direction that measurement is possible.  At the very least, it will expect firms to explore what aspects of culture can be measured and what the relevant metrics could be.

10        This is a topic with multiple nuances and layers of complexity.  Culture affects various aspects of the business, strategy, infrastructure, people, policies and ways of doing things – separately and through their interconnectedness.  It isn’t a topic where a quick fix will do.

 

The blog and all entries on it are intended to provide general information about recent and expected items that might be of interest.  Neither the blog nor any entry provides or constitutes, or purports to provide or constitute, advice relevant to any particular circumstances.  Legal or other professional advice relevant to any particular circumstances should always be sought.

This entry was posted in Ruth's Blog and tagged , , . Bookmark the permalink. Both comments and trackbacks are currently closed.