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Improving Culture in Financial Services

By The Enforcd TeamThe Enforcd Team

As the FCA submits its discussion paper on transforming culture, how can regulators move business culture in the direction it wants?

Big business – especially the financial services – has a big problem: trust. As story after story appears in the press about poor culture, the sector needs to get a grip. The question is how. To answer that question the FCA has released a discussion paper entitled transforming culture. Drawing on input from experts, academics and thought-leaders from around the world, it presents the regulator’s own roadmap for the future.

It comes at a time when the question of culture is very much in the headlines. On Friday 9th March 2018, Martin Shkreli, once dubbed one of the most hated men in the world, was sentenced to seven years in prison. This was the man who famously upped the price of drug from $13.50 to £750, and whose openly unapologetic approach made him a poster child for bad business practices everywhere. Now he’s heading to prison for securities fraud. Edelman’s Trust Barometer for 2017 showed that trust in financial services is still falling. Increasingly, the public perceive financial services as being flawed, untrustworthy and in some cases corrupt.

The focus of debate has always been whether the fault lies in bad apples or whether wider culture in financial services needs to be addressed. In recent times, the emphasis on the latter. The scandal of the President’s Club dinner paints a picture of a sector struggling to maintain even the most basic levels of acceptable behaviour. As a quick look at some of the penalties being announced through our Regulatory Intelligence platform, poor culture is still rife.

Addressing culture

The FCA has placed culture front and centre over the past couple of years as they seek ways to establish expectations and foster a positive culture in which good governance and conduct is embedded within the fabric of an organisation, and in which all participants have greater responsibility and personal accountability.

They’ve already made significant strides to improve matters such as with the Senior Managers and Certification Regime (SM&CR), which sets minimum standards of behaviour for financial institutions. It sets requirements for managers to take greater responsibility in identifying where harm might occur and what measures they can take against it.

Jonathan Davies FCA Director of Supervision, Retail and Authorisations says:

“Culture may not be easily measurable, but it is manageable. So, firms can and should take responsibility for ensuring their culture is healthy for both their employees and customers, which can complement and support their business strategy.”

Despite high-profile instances of corporate misconduct, the FCA and other regulators around the world, have historically struggled to inject real accountability into organisations. Part of the problem has been the challenges involved with measuring good conduct and making sure every part of the organisation buys into the strategy. All that, though, is beginning to change.

“We, as a regulator, have long gone beyond having the mindset that simply complying with rules is enough. However, we don’t believe a one size fits all culture is the right way to go. So, we want to promote a discussion and consensus on the essential features of a healthy culture and how firms, regulators, employees and customers can help deliver that culture.”

What to do

This paper, then, is the latest attempt to promote that discussion and move towards that consensus. It includes a series of essays from academics and experts about what good conduct would look like and how organisations can get there. It includes contributions from leading figures across the financial services sector including executives from Monzo Bank, Nationwide Building Society and TSB as well as academics and philosophers.

There are plenty of questions to be asked. One essay, for example, compares the financial crisis to the story of Oedipus. Other authors have faced their own struggles. Among the essays, for example, is a guide to leading culture change from Credit Suisse and UBS, both of whom have been fined billions in recent years for issues such as helping clients to avoid tax and mis-selling of mortgages.

Their examples pin-points a crucial gap which hinders compliance. Financial institutions have made attempts to establish guidelines and set out a mission for improved culture. Ensuring those objectives become embedded in culture, though, is another issue altogether.

It’s a challenge we’ve covered extensively in our recent blogs. Our recent series focuses on Megan Butler’s speech to the FT Investment Summit in which she outlined some of the challenges and how the FCA was working to address them. In a wide-ranging speech, she covered issues such as deciding what good culture looked like, setting out frameworks, monitoring compliance and establishing incentives and cross-organisation education to encourage better compliance.

Establishing a good culture will be a considerable undertaking for every company. It’s about much more than just implementing guidelines, publishing mission statements and drawing up a strategy. It’s about ensuring that staff understand what is expected of them, and that they carry this through into their daily working life.

Statement versus intent

All too often there is an imbalance between a stated mission and how staff feel incentivised. They all want to do well, and to please their managers. If they come under pressure to increase sales, they are likely to do this to the detriment of appropriate ethical or sustainable working practices.

Keeping up with the changing regulatory environment is also a challenge which is why the flow of information has become so important. For example, the arrival of GDPR will place new expectations on companies, but everyone in the organisation will need to be able to understand them.

Our Regulatory Intelligence platform is designed to help people stay up to date with the information they need. There are details on the latest guidance from the FCA, of penalties and insights from experts. This screenshot of our latest insights, for example, includes details of new GDPR rules, the limitations of AI and details of the latest penalties.

It’s a good opportunity to get an instant glimpse of the latest regulatory news and information from some of the world’s leading experts.