Conduct questions

5 Basic Conduct Questions Financial Services Firms Must Ask Themselves

By The Enforcd TeamThe Enforcd Team

In the first part of a series of seven blog posts, we look at the 5 basic conduct questions that arose out of Megan Butler’s speech at the AFT Investment Summit last year.

In September 2017, Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists at the FCA, gave a speech on “Where next for investment and asset management regulation?”

She was speaking at a time when the investment community is facing a host of challenging questions.

From evolving risk to new technologies and changing customer demand, the sector must find a way to move forward successfully. There can be friction between regulators and the regulated, but unless they find a way to work together the sector – and indeed society as a whole – will suffer.

A force for good

Megan Butler began by acknowledging some of that suspicion by quoting Ronald Reagan – that old champion of loose touch regulation. The approach of governments tended to be three-fold, he said, “if it moves, tax it, if it continues to move regulate it and if it stops moving subsidise it.’

That is not, of course, the way the FCA would see themselves, but suspicion remains. Indeed, it’s important to recognise the positive role the investment community plays in the world. It is a major contributor to the economy and provides valuable services such as pensions that most people rely on.

The asset manager is by no means the enemy, but there are problems. As the FCA’s own research shows there are serious issues and ‘not all of it made easy reading’. Weak price competition and no correlation between price and performance were giving investors a raw deal. On a wider scale, the very public failings of the investment community have contributed to eroding public trust in business and authority of all kinds.

2018, then, is going to be an extremely important year for all parties – not least because of the busy regulatory calendar. MiFiDII and PRIIPS have already landed. GDPR in on its way. There is a huge amount to keep up with and problems are likely to occur. Maintaining a keen eye on developments will be.

The 5 Conduct Questions

According to Megan Butler, what the FCA cares about are five very basic conduct questions financial services firms must ask themselves:

  1. What proactive steps do you take to identify conduct risks in your business? 
  2. How do you encourage people in front, middle, back office, control and support functions to feel responsible for managing conduct?
  3. What support do you put in place to help your people improve the conduct of their business or function?
  4. How do your board and executive committee get oversight of conduct in your organisation
  5. Have you looked at whether there are any business activities you’re engaged in that undermine your work to improve conduct?

Over this series of blog posts we will look at each of these questions to see what actions firms can take.

All in all, Megan Butler’s speech can be seen as a gentle nudge from the regulator. It’s an acknowledgement of the valuable role the investment community plays in society, but also a gentle warning of where it is going wrong and the questions it has to ask.