It would be quite the task to pinpoint what makes each person working in the financial services industry conduct business the way he or she does. But for Jonathan Davidson, executive director of supervision - retail and authorisations at the Financial Conduct Authority (FCA), perhaps a shift from a compliance culture to an ethical one is something we should look into.
In his City and Financial speech, Davidson discussed the importance of culture and how – on top of strategy and business models – it affects outcomes for consumers. To this regard, he highlighted the goals of the accountability regime.
“Our view is that it can’t just be business – it has to be personal too,” he said. “Having individuals within firms being held personally accountable for their work has been shown to affect outcomes positively in a number of sectors.”
According to Davidson, the accountability regime not only sets a standard for the outcomes of culture – it also has an important impact on senior managers, on how a firm is governed, and on people’s capabilities.
Among the components of the regime is a set of minimum standards for every individual’s behaviours. Here are the conduct rules:
- You must act with integrity
- You must act with due care, skill, and diligence
- You must be open and cooperative with the FCA, the PRA, and other regulators
- You must pay due regard to the interests of customers and treat them fairly
- You must observe proper standards of market conduct
The other two components are rules for senior managers and certification rules. These rules though are not all about fear and enforcement, noted Davidson.
“Just because something goes wrong in your area of responsibility doesn’t mean you are automatically liable,” he said. “Our approach will be to assess whether you took reasonable – and I mean reasonable – steps to prevent other people breaching the conduct rules.”
The official added that it is not the FCA’s role to dictate a firm’s culture any more than it would dictate its business model or strategy. “Whether you conduct meetings sat on beanbags and funky sofas or enforce a ‘top hat and tails’ dress code, it doesn’t matter to us,” Davidson stressed.
He continued: “However, I think that an ethical culture could be a sound business proposition. A sense of inspiration not only enables some firms to deliver the right customer and conduct outcomes, it also leads to greater employee engagement, better teamwork, and more innovation.”
Davidson, who said culture may not be measurable but is manageable, believes it is possible to move from a compliance culture to an ethical culture.
“So we have higher aspirations for financial services culture than one that is purely fear-based. In other words, being good could be good for business,” he said.
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