The FCA maintains its focus on culture and conduct in the context of the Senior Managers and Certification Regime (aka the accountability regime). In a
recent speech, Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA, acknowledges that while culture may not be measurable, it is manageable. The culture of firms and the strategy and business models of firms are closely interlinked – these are two of the key root causes of conduct failures.
Rather than being overly concerned with how firms measure culture, the FCA looks at what firms are doing to manage culture. The FCA refers to the four types of levers of culture:
- a clearly communicated sense of purpose and approach, ensuring that employees understand the ‘what, how and why’ of the company’s true purpose;
- the tone from the top;
- formal governance, processes and structures that set out expected behaviours, including a well thought out conduct risk framework;
- people related practices including incentives and capabilities.
The accountability regime reinforces the importance of having the right culture, while recognising that one size does not fit all. It is perfectly acceptable for different firms to have different cultures. The regime sets the standards for the outcomes of culture in a firm. Jonathan Davidson proposes that, ideally, every customer should know about the FCA’s Conduct Rules and what they are legally entitled to, so that they can recognise when rules are being been broken.
Good conduct culture is about having the right capabilities and the right motivations. Fear of being fined or punished for wrongdoings can be an effective source of motivation but it is not sustainable. A culture which builds on individuals’ desire to see themselves as good people is likely to be more effective in the longer term. Jonathan Davidson concludes that managing culture by using the four levers (referred to above), it is possible to move from a compliance culture to an ethical one. An ethical culture can be good for business, as well as delivering the right customer and conduct outcomes.
How we can help
Through our specialist approach towards conduct and culture, we can help your business to embed an effective culture and that not only meets regulatory expectations but works commercially for your business and aligns with its strategy and business model.
For more information, please
contact us.