Key Consumer Duty developments and recent communications issued by both AMI and the FCA, with commentary on implications for mortgage intermediary firms…
In the recent policy and supervisory work from both the PRA and the FCA much has been made of the culture within a firm. There is a growing recognition that whilst a robust rulebook and well-established principles alongside the Senior Manager regime provides a framework, it is how a firm thinks and operates that needs closer focus and attention.
In order to help firms consider these issues more deeply the FCA has issued a discussion paper on transforming culture within financial services. It comprises a collection of 28 essays from industry, academics, international regulators and change practitioners. Interestingly whilst many banks were asked to contribute, insurers, fund managers and distribution were not. However on 19 March 2018 the FCA held a full day workshop on culture, at which Andrew Bailey spoke and external presentations were given with active participation from the wider industry.
Responses to this paper are not invited but the FCA expects firms to consider the issues in the paper and to engage in the debate about what constitutes a healthy culture and how to promote it. Financial services leaders and practitioners are expected to consider how they effect change in their organisations, by:
- using behavioural science to guide incentives and cultural change
- looking beyond the role of leadership in effecting change
- applying strategic focus to the continuous process for adapting culture
- fostering environments of trust to encourage openness and learning
- applying a systems perspective in assessing both internal culture and external influencers.
From the papers and discussions a number of key themes emerge that all firms including the mortgage sector need to consider as part of the way they do business and interact internally and externally. What was not in any way questioned was that there still needs to be significant change to the culture within the vast majority of financial services firms.
At the workshop, consensus was that cultural leadership must start in the boardroom. Firms need to consider how visible is their board, CEO and senior management team. They must demonstrate and own the culture. However whilst the tone of voice from leadership is key, top down implementation is not enough. There needs to be transparency, commitment and buy-in from all levels. It has to be woven into the firm’s governance framework. Many commentators see it as not about stopping bad things, but about promoting good things and excellence.
Perhaps it is better to see culture as clarity of purpose not just values; what do people actually think and do? What is it that drives and motivates them? There will not be one good culture, but various approaches, dependent on size, style, product, consumer type and values. Good culture needs courageous leadership, direction, good decision making and authenticity. No one has all the answers, but to succeed firms need to build new teams across traditional structures and ensure extensive participation and expansive communication.
Ownership of culture must run like blood through the organisation – bottom up and top down, with the right tone of voice and people will have to want to do it. Transparency is thought by many to be all in culture – sunlight is the best disinfectant. As a core component there is a fundamental need for diversity in all its facets to provide good challenge and to match the society we operate within.
As a part of the workshop discussions some considered that the plethora of rules, compliance approach to controls, and FCA approach to supervision and enforcement could be considered as part of the problem as people are focussed on fear of breaches not on excelling. The regulator needs to help by holding up a mirror to help firms identify their issues – but in a supportive role not as a supervisory critic.
The FCA will continue to explore ways to improve culture in financial services by engaging with industry to gather practical examples of how the insights from this paper can be applied in practice. Part of this will include looking at questions such as how to raise management of ‘culture’ as a leadership discipline to the level of rigour and importance as ‘strategic planning’ and ‘risk management’. In any assessment there will be the firm’s brand values, its cultural values and its people’s personal values – good firms will bridge these and align to a common purpose.