Engendering good conduct and culture within regulated organisations

UK FCA expounds on the importance of good conduct and a healthy corporate culture


A recent speech from a senior official at the UK FCA has given a valuable insight into the thinking and expectations of the conduct regulator when regulating UK firms. This provides an important outline and understanding on the probable thinking and the role and approach to be taken by the UK conduct regulator when it undertakes its various, authorisation, supervision and enforcement tools and roles.


In risk assessing and managing individual firms and connected Group organisations the FCA places a large emphasis on the inherent and intrinsic behaviours, mindsets and values found to exist or be practiced within the firm, the various ‘incentives’ that can and does often influence them. Invariably, this means that the nature, quality, visibility and effectiveness of the internal governance arrangements in place across the firm/organisation on a practical day-to-day basis will be central in any assessment or determination of the capabilities of the firm and its senior-management to manage and oversee the actual risks and affairs of the business. Therefore, a firm, and its those in key roles and of influence, are likely to face scrutiny, challenge and even criticism where the habitual or endemic approach, values or attitude on matters as viewed and expressed at an on-the-ground level is either inconsistent with its stated arrangements or demonstrably falls short of required or expected standards.


The FCA will seek to both look at and through the evidence of a firms’ culture and values as a direct measure and indication of the probable quality and appropriateness of acts of conduct (and equally visa-versa in the event of adverse events and circumstances arising). The FCA draws short of prescribing any formal cultural requirements, recognising the differing nature and style of organisations actually needs flexibility. Nevertheless, the FCA does outline some illustrative aspects, methods and metrics it will consider and apply in assessing cultural qualities. This includes management ownership, direction and measurement/indicators, internal remuneration and incentive systems and tools, as well as elements of a corporate narrative such as its expression of mission, values etc. and finally the more dynamic and internal capabilities of the organisation to challenge and change etc.


Inevitably, this also means the FCA will want to understand and even test the quality of internal leadership, with an effective and top-down led culture being seen as essential to securing and delivering reputational confidence and trust in an organisation and its business across all internal and external stakeholders and participants. The threats and harm to consumers and reputations are also seen as equally relevant across both the ‘retail’ and ‘wholesale’ markets. In addition, the recently implemented ‘Senior Managers’ and ‘Certification’ regimes in the UK now provide an updated and arguably more robust framework for individuals holding key functions and responsibilities to be held directly to account for future shortcomings and failures ‘during their watch’ by playing their part for any apparent or perceived lack of skill or competency etc..


The FCA clearly acknowledges and accepts its participation in driving, embedding and enforcing the necessary culture and conduct standards across the regulatory landscape in the UK. As such, matters and considerations of both culture and governance remain a major priority for the FCA within its latest and future 2016/17 planning. This all means that firms should expect to see the FCA routinely engage and probe on how they establish, maintain and evolve all elements of their own cultural approach and how this aligns with and supports the suitability and resilience of the ongoing business objectives, risk appetite and business-model etc. of the firm.