Financial services culture needs to be about more than compliance and fines, and more about ethics, said Jonathan Davidson, executive director of supervision at the FCA.
Mr Davidson, speaking at the City and Financial Conference last night (19 September), said that in many parts of financial services “fear and money” remain the primary tools of motivation in the financial services industry.
He said a lesson learnt from behavioural economics is that financial penalties alone do not change behaviour as they simply allow a cohort of market participants to place a price on breaking the rules.
Mr Davidson said an ethical culture can be more powerful than one based entirely on enforcement.
He said: “Whether you conduct meetings sat on beanbags and funky sofas or enforce a ‘top hat and tails’ dress code, it doesn’t matter to us.
"However, I think that an ethical culture could be a sound business proposition. A sense of inspiration not only enables some firms to deliver the right customer and conduct outcomes, it also leads to greater employee engagement, better teamwork and more innovation.
"By the way, it also delivers lower sickness, absentee and turnover rates.
"So we have higher aspirations for financial services culture than one that is purely fear based. In other words, being good could be good for business.”
Mr Davidson's comments came as international law firm, Allen and Overy conducted a survey among C-suite directors (those with chief in their job title) revealing at least 33 per cent have experienced a claim or investigation involving a senior manager of their company (up from 27 per cent a year ago).
The survey of 127 directors was said to highlight the regulatory challenge facing many organisations from increasing FCA scrutiny and the emergence of new regulation including the extension of the senior managers regime and corporate governance reform.
Additionally, the survey showed that new and emerging risks such as cyber and data loss are of increasing concern at board level.
Joanna Page, partner and head of Allen and Overy’s insurance litigation group, said: “What is clear is that directors and officers are under increasing scrutiny, with greater emphasis being placed on personal accountability and liability.
"Allied to this is the broader uncertain geo-political environment, not least the impact of Brexit, and a raft of new regulation and legislation.
"It is clear that corporate leaders feel, and are, exposed to a broader range of risks than ever before across the entirety of their business operations."