Firms’ culture and governance is a continuing priority for the FCA because both can either drive or mitigate harm to consumers and markets, leading to either positive or negative outcomes.
If culture is ignored, we lose an opportunity to tackle one of the major root causes of conduct failures. So, we are working to promote effective cultures and governance across the industry to prevent harm caused by inappropriate behaviours, and to support firms in delivering real and sustainable cultural transformations.
While culture may be difficult to measure, we believe it is manageable. A focus on culture is the responsibility of everyone in a firm. It should be a collaborative effort, driven forward by all levels of staff within every business area.
Each firm’s culture is different so we do not believe there should be a ‘one size fits all’ culture and we do not prescribe what any firm’s culture should be. Firms should be able to demonstrate how they satisfy themselves that their cultures lead to appropriate outcomes and do not cause harm. We recognise that there are numerous drivers of behaviour, many of which we and firms can identify and therefore manage. As a regulator, we focus on four of these – a firm’s purpose, leadership, approach to rewarding and managing people, and governance arrangements.
Governance practices, systems and structures provide firms with a framework through which they can embed an appropriate culture and drive appropriate behaviours throughout an organisation. Firms should be able to show the effectiveness of their governance arrangements in identifying, managing and mitigating the risk of harm.
Culture and governance is at the heart of how we authorise and supervise firms and look for improvements where they are needed. Beyond this, we want to use our position as a regulator to listen and encourage open discussions on the topic with the aim of advancing the debate, incorporating our findings into the way we regulate firms and encouraging real and sustainable cultural transformations in financial services.
Transforming culture in financial services
In March 2018, we published a discussion paper on transforming culture in financial services. The paper is a set of essays that discuss what a good culture might look like, the role of regulation and regulators, how firms might go beyond incentives, and how to change behaviour for the better.
We followed the paper’s publication with a conference to develop our thinking, facilitate and encourage open discussion, and broaden the debate on culture in financial services. Our event summary contains the key ideas that were raised in the discussions throughout the day, and details our next steps for this work.
- Transforming culture in financial services - Speech by Andrew Bailey, CEO of the FCA, delivered at the FCA Transforming Culture Conference in London, 19 March 2018
- Culture and conduct – extending the accountability regime - Speech by Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA, delivered at the City and Financial Summit in London, 20 September 2017
- Culture in financial institutions: it’s everywhere and nowhere - Speech by Andrew Bailey, CEO of the FCA, delivered at the HKMA Annual Conference for Independent Non-Executive Directors in Hong Kong, 16 March 2017
- Getting culture and conduct right – the role of the regulator - Speech by Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA, delivered at the 2nd Annual Culture and Conduct Forum for the Financial Services Industry in London, 12 July 2016