A deep dive into culture for Financial Services firms

We know from our observations of the FCA’s enforcement output that it holds good culture in high regard. And, from the foreword of one of the FCA’s most recent consultations we have this “One of the clearest warning signs of a failing culture is non-financial misconduct – behaviours such as bullying and sexual harassment – going unchallenged. Failure to tackle toxic behaviours drives away good people, prevents staff from speaking up and undermines performance. It damages growth and enables financial misconduct”.

What is meant by “misconduct” and by “toxic”?

Although the financial services space has produced some eyebrow raising examples of what intentionally “bad” conduct looks like, it’s fair to say that what is “bad” can be subjective and not always intentionally so. We are therefore looking for some possibly fuzzy stuff that is hard to define, might be unintentional, might be inactive rather than active, might be bad in my opinion, but not in your opinion.

If we add to the mix that these behaviours are only the indicators of culture, then this makes measuring exactly what culture is, a potentially tricky task. That being so, placing it in the “too hard box” is not an option because when it goes wrong, as we have seen in high-profile examples, the ramifications can be widespread and impact upon not only the entity involved, but also consumers and the wider markets.

What is culture?

Culture is like the SCOBY (if you are into your kombucha or your sourdough), it is the unsaid, unwritten, knowing when and how to do the right thing, and having a moral or ethical compass aligned in the right direction for those who are active in a highly regulated sector. It is not the symptom; it is the cause. It is about steering things in the right direction and doing so as an organisation which is made up of individuals who can all make good decisions as individuals, and who can also bring this influence to the collective of their organisation. This is organisational culture, and it has the potential to affect organisational performance in significant ways.

What is it not?

It is not ticking boxes in an annual compliance report.

What is it then?

Culture is about meeting the regulatory requirements applicable to the sector with a complex mix of systems that are made up of shared purpose, checks and challenge, key skills and traits, behaviours and training, systems and controls, good data and information, independence, efficiency, effectiveness, transparency, and high-quality decision making. It is about the humans involved having the right values, and competencies, and the ability to accept accountability for their actions both individually and as a collective.

What does good look like?

I find it easier to focus on what “good” looks like, what the drivers of good governance are, and what “good” culture looks like. This approach seems to align with the regulator’s visions and goals around good outcomes, widespread confidence in the financial system, and stable markets.

Think about the following:

Strong leadership

A key factor behind high-quality collaborative decision making that is backed by strong accountability will be the ability to face up to problems, failures and challenges. The regulator does not expect every firm to be perfect, but it does expect firms and the leaders of those firms, to recognise problems and do something proactive about them before they cause an even bigger issue for the firm, its customers, or worse, the wider markets.

Velocity

The financial services industry is facing a constantly changing and rapidly evolving threat landscape. This means that firms who understand good culture and who can nurture it, can harness what they have to their ultimate advantage and be nimble and swift in achieving the right outcome when circumstances demand. It is not possible to have a documented policy for every eventuality that might arise. It is possible to have a collective mind that can ensure that it does its best to reach the right outcome, whatever the circumstances.

There is no one size to fit all

A firm’s culture will be entirely unique. There is no off-the shelf “culture kit”. A good place to start building your tailor-made culture solution is by looking for key indicators among your apex leaders. Do you see competence, capability, integrity, honesty, respect, openness, reputation, resilience and reliability? Do you see a shared purpose?

Direction of travel

The FCA is focused on outcomes-based regulation. To foster innovation and boost growth it is shedding duplicative and obsolete regulatory requirements so that the entire regulated community can keep pace with rapid change and avoid the need for more regulation. A regulation light approach will need to place more reliance upon strong culture and strong accountability. In getting this right, there lies competitive advantage in markets that are clean and in which consumers have confidence.