FCA: Culture is ‘personality, habits, ethos of the organisation’

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FCA: Culture is ‘personality, habits, ethos of the organisation’

The culture of financial services organisations is often depicted in binary terms, “either dull and Jurassic or reckless and scandalous”, according to the Financial Conduct Authority. 

Speaking at City and Financial Global's 8th Annual Culture and Conduct Forum for the Financial Services Industry today (November 20), Emily Shepperd, chief operating officer and executive director of authorisations at the FCA, said films and programmes often depict that greed is the underlying motivation of financial services professionals.

Giving examples of the Wolf of Wall Street and The Big Short, she said all of these demonstrate financial services in a negative light.  

“In fact, the only positive depiction of a financial services professional I could find was that of George Bailey, the main character in It’s A Wonderful Life,” she said.

“But that was released in 1946. It was a loss-making flop for many years before becoming a classic.”

Shepperd said the culture of financial services is depicted in a negative light but questioned what culture actually is.

“I think of culture as being the personality, habits and ethos of the organisation”, she said.

“It has been said that culture is what you do when no one is looking.

Our role as a regulator is to lead by example and we do care about culture as it informs conduct and that is what we regulate.

“But to be a leader means to shape your organisations’ culture rather than hiding behind HR.”

She discussed the importance of senior people not imposing an inherited culture that can create barriers to progress, and stated that the FCA expects senior leaders to nurture healthy cultures in the firms they lead. 

“Cultures that are purposeful. That have sound controls and good governance. Where employees feel psychologically safe to speak up and challenge. 

“Where remuneration does not encourage irresponsible behaviour that can ultimately damage the business and wider markets.”

She explained that one of the most direct ways managers and leaders can shape culture from the start – and spot when it needs changing – is through language. 

“Have you noticed how if a boss uses a term, whether it is ‘pivot’, ‘leverage’ or ‘wet fish’, suddenly everyone in the workplace begins to use pivot, leverage and wet fish?,” she said.

“That is because often the boss and those at C-suite level set the tone for culture.”

Shepperd explained that when she first started at the FCA, she found the custom of asking a question and having to wait for the answer to be fact checked by several people too slow.

“I found that deploying the revolutionary technique of cutting down on emails and walking around and talking to people more effective and immediate,” she said.

“Our role as a regulator is to lead by example and we do care about culture as it informs conduct and that is what we regulate.”

She said the consumer duty will help with the culture aspect as the regulator has asked firms to think about what a good outcome would be for their customers and to apply that consideration at every stage of producing and delivering a product or service. 

“We have also asked that the thinking starts at board level and have requested that there is a consumer duty champion on every board,” she said. 

“The reason is simple: the duty challenges you to ask significant questions about your purpose.

“The duty pre-empted the cost of living challenges and we have always asked firms to pay particular attention to the most vulnerable.”

Other tools to embed positive culture

The FCA said another tool is the early and high growth oversight support which helps new firms to embed the right steps from the start, soon after they have gained authorisation and long after the consultants have abandoned them.

“It also provides support to those new firms that are looking to scale up,” she said. “Diversity and inclusion (D&I) is also critical to culture as it can prevent groupthink.”

Through its firm and portfolio assessment models, supervisors look at purpose, leadership, governance and the approach to people. 

This includes diversity and inclusion as well as psychological safety.

“We have recently completed a study into D&I across a range of organisations and found that firms were focused on improving representation at senior level but this dropped off at mid and junior level,” she said.

We are looking closely at what support firms offer to employees to improve their culture so that it boosts the conduct of their business or function

“We expect firms to collect data on the diversity of their staff, actively monitor it with interest and take bold action where needed, paying attention as to where it intersects. 

“It can lead to better recruitment and retention – particularly in a challenging market for talent.”

In her speech, Shepperd said the biggest cultural shift the FCA has seen since it was created has been its commitment to innovation. 

“We want to support industry as it draws on new tools, like artificial intelligence (AI), to analyse the colossal amount of data they hold,” she added.

“With the Bank of England, therefore, we’re talking to industry and consumer groups about how firms can use AI safely.

“Done well, it can mean better, more accurate pricing and products better suited to consumer needs.”

However there are risks as many in industry are worried about how AI will be governed.

“We also believe many of the rules to cover this are already in place or on the way, not least the Senior Managers and Certification Regime (SM&CR) and the upcoming consumer duty. 

“SM&CR embeds and codifies good practices across a broader group of firms to support accountability and transparency. 

“Likewise, there is a debate around crypto and its regulation – or lack of.”

At present, the FCA’s role is largely limited to making sure that crypto firms that want to register in the UK are abiding by anti-money laundering rules. 

Elsewhere, she also said another issue the FCA receives the most questions about is the future rules around environmental, social and governance (ESG) products and promotions. 

“There is – rightly – always a major focus on the E and S part of ESG,” she said. “But perhaps less so on the g – or governance. 

“We are looking closely at what support firms offer to employees to improve their culture so that it boosts the conduct of their business or function.”

Shepperd added: “If more firms can get this right, we might see fewer films about rogue traders and more films about the plucky banker who saved the economy and consumers from harm by doing the right thing. 

“It might be an initial box office flop, but I am confident in time it will become an enduring classic success.”

sonia.rach@ft.com

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