Increasingly, we see a focus on culture and conduct within financial services businesses in regard to how both firms and individuals behave. The architecture of the current regulatory regime, with the Financial Conduct Authority (FCA) and the Prudential
Regulation Authority (PRA) bringing increased attention to their respective spheres of interest, is partly responsible for this development. But having high ethical standards is also important for culture and morale. If individuals feel they are working in an environment that holds ethical standards in high regard, this sets an example of excellence, and individuals feel more inclined to mirror that ethical behaviour in their own work. Having goals with ethical intent helps the individual make a difference to customers’ lives.
The focus also results from continuing legislative and regulatory developments stemming from the work of the Parliamentary Commission on Banking Standards, and the
impact of the Solvency II Directive. One effect of these changes is the enhanced requirements that have been introduced for senior managers and other key individuals. Initially, these apply to dual-regulated firms (ie those regulated by both the PRA and the FCA) with effect from March 2016. These arrangements require both regulators to take a close interest in the way that firms and individuals behave.
While in the immediate future the requirements apply to certain firms (such as insurers) but not to others (such as brokers), much of what they contain reinforces what is
already seen as good practice, and as such is appropriate for wider application across all firms. Although the requirements for insurers are somewhat less onerous initially, HM Treasury intends to extend the full Senior Managers and Certification Regime for the banking sector to all regulated firms (including insurers, brokers and financial advisers) by 2018.
The new regulatory focus on business culture is an opportunity for both individuals and firms to redouble their efforts and help raise public confidence in the financial services sector. However, it is no longer enough for individuals and firms to simply comply with regulators such as the FCA – we must aspire to go beyond compliance and drive up ethical standards across the industry.
In a highly regulated world it is important that professional bodies help firms build good culture both within their firms and also across the sector. As with many issues, senior managers play a hugely important role in setting the ethical tone of their organisations. In large firms leaders send strong signals to their workforce about what is expected, and ensure that middle managers are engaged and empowered. In small firms the leaders often set the culture of their firm, which presents challenges of a different nature. Regardless of the size of the organisation, it is essential that staff feel empowered to discuss difficult issues and challenge those in more senior positions.
The overall need to address the reputational damage caused to the sector by the scandals of the past decade remains clear. Legislators, regulators and the industry itself all have a vested interest in rebuilding trust with clients, customers and the general public, to support the economic wellbeing of the UK and to demonstrate the broader value of financial services to society. As one strand of meeting these aims, the behaviours of firms and the individuals within them are going to be exposed to ever-increasing scrutiny.
Regulators can create systems that can seek to hold individuals and organisations responsible for their actions. However, it is much better when the firms themselves take
proactive responsibility for identifying and managing conduct risks and securing an ethical culture. Individuals can make their own personal contribution to this by setting
out to do the right thing as a matter of course. Those who are members of a professional body and consequently commit to adhering to codes of conduct and aspiring to the expectations of their various professions have a further part to play as role models in this new environment, as do the professional bodies themselves in helping to encourage and guide their members.
A strong culture, led from the top, means that all employees – at all levels and in all functions – understand their purpose; understand what behaviour is expected of
them; but most importantly understand why and how their roles contribute to customer outcomes and customer lives.
Sian Fisher has held senior roles in a Lloyd’s syndicate, a UK and European insurance company, a start-up intermediary, a market-leading MGA, and a major international broker and US corporate.