The FCA has now introduced the Senior Managers & Certification Regime (SM&CR) for banks and insurers, creating a new standard for personal conduct to help improve accountability and drive a healthy culture across the sector. The SM&CR is not just a compliance exercise – it is a catalyst for improving culture across insurance firms and financial services. Jonathan Davidson discusses how the new regulation can benefit insurance firms and five key ways to help achieve culture change in 2019.
Why is a healthy culture important for insurance firms?
It’s good for business when employees buy into a firm’s purpose, feel personal accountability and are inspired to speak up (and to listen). This kind of culture supports a healthy and inclusive workplace for employees, innovation and sustainability for shareholders, and thoughtful identification and mitigation of risk.
An unhealthy culture can deliver returns in the short term; but it can also prove risky, expensive and unsustainable in the longer term. The costs of an unhealthy culture start with redress costs and fines; they can end with huge reputational damage and loss of trust. However, if an insurance firm can demonstrate it is working in the interests of consumers and the market, public and industry confidence will increase.
How can insurance firms deliver culture and governance change?
Each firm is unique in its purpose and the way it operates, so naturally each culture will be different. There is no ‘one size fits all’ solution. However, as a regulator, we do pay a lot of attention to the results of the culture at work to see that harm is avoided. In particular, we look at how a firm uses four drivers of behaviour – a firm’s purpose, leadership, approach to rewarding and managing people, and governance arrangements.
Here are five ways insurance firms can look at implementing this change in the year ahead:
1 – Take on the leadership challenge
Senior managers (covered by the SM&CR) are leaders and their role can be extremely influential in shaping the way others behave. They need to take responsibility not just for the decisions they make, but also for how they lead others too.
2 - If you want the trust of employees, customers and regulators, you must earn it with no ‘say-do gap’
Strong leaders inspire trust by saying what they are going to do – and doing it. It is the same for businesses. Closing the ‘say-do gap’ starts with a clear and meaningful purpose – this is an organisation’s driving force; it is the definition of what constitutes its success. A gap between what an organisation says it is doing and what it actually does can create a lack of credibility and can ultimately diminish the trust of employees, customers and regulators.
3 – Make sure that your colleagues are equipped as well as encouraged to do the right things
Customers and regulators want to trust that you will do a good job as well as being well intentioned. As part of the SM&CR, we have developed five conduct rules to improve standards of behaviour of all financial services employees, not just at the senior manager level:
- You must act with integrity;
- You must act with due care, skill and diligence;
- You must be open and cooperative with the regulators;
- You must pay due regard to the interests of customers and treat them fairly;
- You must observe proper standards of market conduct.
While the conduct rules provide a good framework for those within an organisation to follow, it is the role of leaders to ensure colleagues are not only capable of doing the right thing, but that they are also encouraged to do so. Leaders should ensure employees understand the benefits of contributing to a positive culture, and that they feel empowered to contribute to change.
It is also important to create a psychologically safe and inclusive environment where staff at all levels in a business feel they can speak up. This can help reduce the potential for excessive risk taking or inappropriate behaviour which can result in major incidents of misconduct, causing harm to consumers and markets.
4 – Be well organised
Allocating responsibilities within an organisation might seem common sense, but the objective of the SM&CR rules is to take this one step further and to make this common practice. This encourages transparency and a feeling of individual responsibility throughout the organisation, which helps keep everyone on track and in line with your desired purpose.
5 – Recognise that it’s all about consistency
If insurance firms want to be successful in achieving their desired workplace culture, they must recognise that it needs absolute and relentless consistency on an ongoing basis across purpose, leadership, approach to people and governance to truly achieve and maintain a healthy workplace culture. Culture change is not a project with a start and finish. Too often culture change fails because of lack of consistency and ongoing commitment.
I believe that insurance firms can benefit from stepping back and reflecting on their culture and how it can be improved in 2019 - the new SM&CR regulation creates an opportune moment to do so. An increasing number of organisations are forming the view that a healthy culture is in their economic interest; if you want to get ahead of the game, it’s a key consideration.
The above was an opinion piece written by Jonathan Davidson, executive director of supervision – retail and authorisations, FCA. The views expressed within the article are not necessarily those of Insurance Business.