Culture and Conduct Connectivity
For an industry that has become extremely adept at measuring, risk rating and assigning Red, Amber and Green classifications to most activities, culture remains fairly elusive for many Financial Services firms to identify and measure. This leads to the danger of what can’t be easily measured being perhaps less focussed upon, as assessment of how far the needle has moved is harder to achieve and can be very time consuming and potentially more subjective than scientific.
Culture, Conduct and Accountability
It is recognised by regulators that there is a link between culture and conduct outcomes, which demonstrates how it is to the benefit of all industry participants to ensure a healthy culture, with it acting as an enabler to positive conduct outcomes. Whilst culture can differ from firm to firm and can be influenced by firm specific elements such as size, globality, business type activities or customer types; when regulated domestically there are key areas which are considered to drive culture and governance – Leadership, Purpose, Governance and People Policies.
“… there are key areas which are considered to drive culture and governance – Leadership, Purpose, Governance and People Policies.”
Moreover, for a healthy culture to be operated at a firm it has to be a tangible aspect of Business As Usual rather than a periodic focus, such as only during an employee performance review. A healthy culture leading to successful conduct outcomes is when it is embodied as a proactive intent on the part of the individual, rather than it being distilled to a distant and faceless ‘firm’ activity.
Tone from the Top
Leadership as a core pillar of culture is a considerable asset when seeking to establish, maintain and enhance a firm’s culture and ensuring individual responsibility and accountability. This is underpinned by the Senior Managers & Certification Regime (SM&CR) where transparency on responsibility and accountability has shifted from regulated and authorised firm, to specific individuals operating at such a firm. The broader conduct reminder to all staff also plays a critical role in ensuring the tone from the top is not only set, but reinforced by Senior Managers and inherently creates a leading by example opportunity from Board to Business As Usual operating levels.
Has the mandatory SM&CR regime been able to enhance the operated culture at firms, through greater clarity of responsibility and accountability and a reinforced message of the necessity to act with integrity, due skill, care and diligence and being open and cooperative with regulators? In its recently published SM&CR report, over four years into the regime, the Prudential Conduct Authority (PRA) has evaluated each component of SM&CR and observations derived from respondents show results of a clear link between the application of SM&CR and a positive impact on culture and behaviour. Enhanced working practices, the articulation of authority and improved focus on accountability and responsibility at firms have all also been cited as positive changes. Respondents noted that SM&CR integration into Business As Usual practices has been mostly achieved, over and above simple regulatory compliance. Respondents also remarked that there has been an increase observed in risk aversion within the industry, as a result of SM&CR.
Culture and Conduct Connectivity
With the indication of the clear cultural benefits derived from transparency of responsibility, accountability and regulatory expectations; firms have a tremendous opportunity to build on this solid and mandatory foundation to cultivate and apply culture as tool in achieving their strategy and delivering positive outcomes for all stakeholders. Governance and Control is core to a firm’s success and encompasses culture, conduct and regulatory capabilities. GD Financial Markets Regulatory Compliance Practice may assist firms in achieving their Governance and Control goals and please contact us for more details.