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Summary ExCo paper on FCA’s approach to culture
Annex
Background and proposed approach
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The Vision
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What is the FCA trying to achieve in ‘Culture’?
FCA Regulatory
Experience
Academia, other
industries
Act as a Catalyst in the industries we
regulate
Consultant expertise
Industry Knowledge
FCA culture
programme
Culture Working Group
2
Develop and leverage tools for individual
sectors to use
3
Feedback Loop:
Sector specific views
of culture also built
into
House Views
Tools:
Thematic reviews
Conferences
Publications
SMCR, etc
Programme
Activity
Outcomes
Industry: Clarity over expectations, tools
to deliver change
2
FCA: Definition, view, priorities
Supervisors: Clarity over tools,
interventions and expectations
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The Vision
FCA as a catalyst
FCA will act as a catalyst in a cooperative relationship with the industry and bringing firms together to help them find solutions to challenges
they face. We will not prescribe 'what' a firm's culture should be, although we will clarify some high-level expectations and share our
experience of good and bad practices. We will also not prescribe 'how' firm's should implement cultural change but we will bring together
industry stakeholders and facilitate engagement so that firms develop sustainable culture change themselves. Our catalyst role will help the
industry to develop common language around culture, identify and tackle key challenges to culture change, and help evolve common
measures on culture for their sectors.
We propose that one way to provide such thought leadership would be to engage with the industry much more proactively than previously,
with clearer messages, and beyond the regular supervisory process. Such engagement can take form of round-tables and other events with
industry, professional bodies and academics on a regular basis.
Additionally, we see that the FCA must contribute to the international agenda on culture with strong senior representation at relevant forums
and more actively drive that agenda forward as an experienced conduct regulator. Taking more proactive thought-leadership role amongst
international regulators will help us shape and drive the global agenda as it evolves
As we strengthen and improve our messaging on culture externally, we also need to address what more we can do internally to support
colleagues across divisions: the support, the tools and sharing of best practice, so they can make sound judgements on culture in the firms
they interact with.
.
OUTCOME
Firms will really understand the value of a customer-centric business: driven by their strategic decisions, their daily behaviour, and resulting in
outcomes that evidence customers and market integrity really are at the heart of a their business. Firms will ‘own’ their culture at all levels and
understand the drivers that meet their aspirations and the risks to successful delivery. Firms will understand the importance the FCA attaches
to delivering this, evidenced by outcomes, with clear indicators that are measured, monitored and progressed in a continuous cycle of
improvement. The FCA will act as a catalyst, bringing together firms, industry bodies, consultants and academia to improve culture in banks.
Supervisors will be better equipped to understand more of the ‘how’ when making a judgement on firms’ culture.
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Key messages
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Culture:
Shared values and norms that characterise a particular organisation and influence the thinking, behaviour and actions of all staff
in a firm and all aspects of decision-making from strategy, market operation to customer interaction.
Continued focus
We view strong corporate culture as a pressing priority. Commitment to deliver this must be ongoing and needs continual focus. To succeed firms and
regulators must work together, build on the progress and ensure momentum. For culture change to be sustainable, it needs to come from within the firms,
driven by the commitment of senior management to make it happen.
Good culture is good for business
Building sound, customer-focused cultures within firms should improve the sustainability of the business as firms will be more trusted by consumers
Ethics
Behavioural science suggests that individuals respond better to messages that contain references to honour rather than law. For example, it is harder to
say “My actions were unethical” than to say “I broke this rule”. Framing culture as a question of ethics appeals therefore to personal honour, making
individuals less likely to take risk in a ‘grey area’ situation. It also presents moral choices as binary, removing therefore arguments such as ‘it’s ok to bend
the rules so long as it’s not serious’.
Accountability
Our approach is driven by wanting to ensure that firms are managed in a way that reflects good governance and promotes the right culture and
behaviours. We want senior individuals to feel true responsibility for, and to be held accountable for, the decisions they make and oversee.
This should, over time, result in improved culture and governance within the industry and promote external confidence that firms have the right people in
the right roles, in the interests of consumers and markets.
Risk culture
The FCA should facilitate the financial services firms to learn from other industries where they have successfully changed their culture. For example, the
airline industry has deeply embedded risk culture through linking it to the discourse of safety. It is unlikely that zero conduct risk failures will happen in
practice. So, it is now about constructing a culture that aims for the right outcomes and that ultimately will have a positive commercial impact.
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How are we going to do this?
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Regular engagement with the industry
We are keen to see firms recognising issues, taking steps to effect change and assuring themselves that they are moving in the right direction. There
is a risk, however, that without continued commitment to the cause the message will become diluted over time, particularly when ‘times are good’ and
firms’ reforms fall further down the priorities list.
As a forward-looking regulator we see a good opportunity in engaging with firms in this way to advance our own objectives. This could be achieved by
regular roundtable session with industry panels, academics and other experts, clear outputs from such sessions and follow-up through normal
supervisory process. While this would be a sector-based approach, the learnings will be shared across sectors.
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Tailored approach
To help the FCA be successful in delivering key priority messages and be able to influence firms so that they recognise the importance of getting
culture right, we should take a tailored approach to communication with various sectors. We propose that future FCA communications better
recognise culture differences across sectors, both in terms of scope of proposed projects and in considering how the outputs can achieve the desired
influence outcome. Engaging with the industry in this way will help define priorities, drive industry’s commitment to culture change and promote
ownership of delivery. Firms will also be able to compare and learn from each other’s efforts by actively engaging with their peers.
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Internal support
We see it as very important to continue with an internal education plan via Culture Forums, Hub updates, and strengthening resources to
help supervisors and other colleagues set a solid foundation for meaningful conversations with their firms on culture. Through the Culture
Forums the supervisors will learn more about the current approach and how to use it within the supervision model as well as will be able to
share good and bad examples of culture in their organisation to encourage read-across from the work in their respective areas.
We see that good training will give them confidence in making judgements about the firms’ culture and help with tough conversation if
necessary. CSD can use its unique cross-sector view and culture experience to share valuable insight into various ways in which firms go
about their cultures as well as what we have seen work and not. CSD is also uniquely positioned to raise culture trends and risks that may
pose a threat to FCA’s objectives.
There will be additional training available specific to Accountability which will help supervisors link SMR to culture.
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How are we going to do this?
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Internal approach:
 Culture Forums - training programme on culture clusters engaging supervisors from across sectors led by the Culture Working group
 Identify sector leads who will liaise with CSD via Culture Working Group on their approaches and progress
 Better resources – more visibility of existing resources, better use of the Hub
External engagement and communications:
 Identify industry stakeholders in each sector and bring them together in focused, facilitated discussions in order to identify the key challenges to
cultural change and facilitate developing industry-led programmes to meet these challenges
 Facilitate discussion how firms and others can successfully develop meaningful metrics around the key cultural indicators and help firms learn from
each other
 Encourage ownership of the commitment to delivery
 International engagement: taking more proactive thought leadership role against international regulators helping us shape and drive the global
agenda as it evolves
 Continue with updating outdated publications so that firms can have a clear view of what are the FCA’s expectations in the culture space and that
they can learn from our cross-sector experience
 Better use of senior management speeches and using better variety of communication channels
 Using tools such as future thematic reviews as key pieces of communication around culture
Following the agreement of the risk priorities for the next year and finalisation of the new supervisory arrangements, the CSD will liaise with sectors to
develop a consistent sector-based plan for the coming year. Until then we will continue strengthening support for supervisors and work with
Communications on senior management speeches.
How will we know when we have been successful?
The challenge is that we cannot measure culture directly – although clear success measures around key indicators are needed both for the firms and
regulators in order to be able to make an informed judgement on it. Our success in this campaign will be hard to quantify as it will be measured by
absence: reduced fines, frequency and severity of failures.
We see that for the regulator, there is no ‘end-date’ in the efforts to educate and drive commitment to culture because culture evolves over time and
so do factors that influence it. We will, however, know that this is embedded when meaningful dialogue and firms’ attention on culture is BAU and not
something that they do because the regulator has told them to.
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Changes to the culture thematic review in banks – our recommendation
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In summary, we recommend amending the culture thematic review (a 2014/15 business plan commitment) to align with the
approach to culture in this ExCo paper. This is the only current thematic work labelled ‘culture’ and will allow us to begin
implementing the FCA ‘vision’ on culture – to act as a catalyst.
Change – no further ‘testing’ of firm practices:
• Initial discovery work for retail banks shows that assessing whether
consumer outcomes are sufficiently influencing appraisal and pay decisions
will be challenging
• Firms will need to incorporate FCA guidance on performance management
and further feedback may not appear helpful
• We will give individual firm feedback where possible, and use initial findings
to focus next steps
Change – no further review of staff concern-raising:
• Whether staff feel safe to raise concerns, and how these concerns are
treated, can be better assessed through anonymous surveys (for example
BSB work)
• Initial discovery work tells us that for firms, this is primarily an issue of
internal whistleblowing. The FCA & PRA will shortly publish updated rules
on whistleblowing, with the possibility of future thematic work.
Consequently the timing of planned culture work on this indicator may not
appear ‘joined up’ with other work.
Change – retail bank sector only:
• Challenges for culture change at middle-management level is a
key risk for retail bank sector
• Wholesale bank sector to consider whether to do thematic work
on appraisals and remuneration for MD/trading heads during
16/17
Culture Thematic Review – current plan:
• Wholesale & Retail banks
• A ‘point in time’ assessment
• A review of how ‘tone from the top’ is reflected in middlemanagement appraisals, pay and promotions and how concerns
are raised and acted on
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Change – not publicising ‘good’ and ‘poor’ practice:
• Current practices at banks are new and FCA may not be in a
position to endorse specific practices without evidence of long-term
effectiveness
• FCA is not perceived as claiming ‘expertise’ on culture change
• Onus on industry to identify and measure good practices
Recommendation: Retail bank engagement on the approaches
and challenges to culture change at middle-management level:
•
•
•
•
Act as a ‘catalyst’ to bring together UK banks, consultants and
other stakeholders (BSB,BBA, researching bodies) to discuss
challenges and approaches, share insights and to keep industry
focus on this area;
Expectation is that firms will own this issue and ‘do all the work’;
A programme of engagement activities – programme ending H1
2016;
The FCA will be supportive of the BSB’s role.
Outcomes:
• improve FCA understanding of sector risks and good practice in
this area;
• possible partnership publications to share good practices (with
PRA, BSB, BBA);
• ‘Read-across’ to other sectors, and
• Test the ‘catalyst’ approach and gauge its success.
Risk: the success of this engagement will be dependent on the
willingness of firms to participate.
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Rationale behind the proposed approach
Why should FCA continue to do culture work?
We have observed that culture can have a significant influence on the achievement of our statutory objectives and good culture can be a powerful
mitigant of conduct risk. The Additionally, we receive multiple signals from firms (for example, through Annual Public Meeting questions) asking to
set out more explicitly the FCA’s expectations. Equally when things go wrong we will be able to have more meaningful conversations about cultural
root causes of the problem and accountability.
What should be our role of the FCA in achieving this?
We see the FCA as a catalyst in a cooperative relationship with the industry, various industry panels and professional bodies.
 The industry needs to see that we are joined up in our efforts to promote good culture.
 Long-term strategy of coordinated communication and engagement will help firms consider and improve their own cultures as well as help
supervisors have meaningful conversations about culture with their firms and sectors
 Engage with industry stakeholders, and facilitate the development of industry standards and measures around cultural indicators, and to ensure
that firms continue to focus on this issue
Risks of not continuing culture work
 Perceptions: Current perceptions in the industry over what FCA does and does not do in terms of culture are mixed, and so is the understanding
of the expectations we have in this space. This can drive not only inconsistent outcomes but also potential public confidence risk from not
delivering what is perceived our role.
 Credibility: In order to hold firms and individuals to account over cultural failures, we must first clarify our expectations and key messages in the
current environment.
 Prioritisation: In preparation of the House Views, culture has been identified by all sectors either as a risk or a driver of other risks. The scale of
the problem may not be represented adequately unless we consider and address culture risk from a cross-sector point of view
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Risks and opportunities
Opportunities
Risks
Good firm culture can reduce likelihood of future misconduct events,
particularly where individual wrongdoings are at the root of the problem
(such as FX) as its sets out clear guidance for individuals about the
behaviour that is expected of them and what is right and wrong. The
opportunity is not quantifiable, but if past failings and their causes are a
metric to go by, the benefit to markets and to consumers will be
potentially very large.
Resources – currently limited resources available in the CSD, particularly
in the Culture and Governance team. The proposed approach would also
require some time investment in the initial phases to set up an efficient
communication plan for short, medium and long term. In doing so we
would also coordinate with Communications and the CWG.
While we see some attempts by firms to tackle culture change, many
have still a long way to go. Our clear communication in this area will help
firms embark on this journey, and those who are already on it, to reflect
on the direction of their travel.
Timelines – with many projects already under way, it will be important to
begin the work soon in order to deliver the outputs in a coordinated way.
The proposed approach is also applicable across sectors and it supports
the FCA’s commitment to take forward-looking and market-based
approach
Global nature of the problem - We can and do much in the UK to
influence institutions’ approach to customer centric culture but
undoubtedly in a global financial services industry global measures can
help to tackle a global problem. Our role as an experienced conduct
regulator is to share best practice and be a leading voice in the
development of a global regulatory approach to conduct.
Transition
Sectors are currently being asked to develop sectoral communications and engagement plans driven by the sub-sector strategies and findings from
the multi-firm and thematic work. This is set to increase to get wider reach across the flexible and fixed portfolios (e.g. round table meetings, articles in
trade press, findings fact sheets). We believe our proposed approach fits into this aspect of transition naturally. CSD will work closely with sectors via
the Culture Working Group to ensure that culture work is integrated into their plans, and that the approaches taken by various sectors remain
consistent.
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Background
TCF
In July 2006 we published a paper ‘Treating customers fairly – towards fair outcomes for consumers’ in which we outlined six outcomes we were looking to
achieve. The first outcome states ‘Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate
culture’. In relation to this outcome, we looked at some of the organisational arrangements that could encourage or inhibit senior management commitment to
the consistent delivery of fair treatment of customers in all parts of a firm’s business. In May 2007 publication on the progress of firms we published the key
cultural drivers we had identified at that stage, followed by a publication in July 2007 where we have provided examples of good and poor practice.
After the crisis
Following the recommendations of the Parliamentary Commission for Banking Standards we have begun developing a new Senior Manager Regime with a
central premise that senior management of a firm can be held accountable for misconduct that falls within their area of responsibility. The regime now includes
Conduct Rules which apply to individuals working at all levels and who also can be held to appropriate standards of conduct.
Separately, we developed an internal approach to culture based on a number of clusters of indicators where supervisors can ‘join the dots’ from their regular
engagement with the firms in order to make a judgement about the firm’s culture. The approach was shared externally through speeches, firstly by Clive
Adamson, then Martin Wheatley and, most recently, Tracey McDermott. The following slides provide a detailed overview of the approach. Scandals such as
PPI, LIBOR, FX etc. have further renewed the attention on culture and emphasized the importance of getting culture right in organisations. Culture is an
important part of this year’s business plan and it continues to be explored through projects such as the ongoing culture thematic project.
Why focus on culture is important?
Culture influences the thinking, behaviour and actions of all staff in a firm and all aspects of decision-making from the key strategic decisions to the daily
decisions made by customer-interfacing staff. We care about culture because we have observed that it can have an influence on the achievement of our
statutory objectives. Poor cultures have been often part of root causes of crystallised risks. We are very interested in culture because we see it as an important
driver and potential mitigant of conduct risk and we continue to be interested in the firms’ aspirations in shaping and transforming its culture and what level of
success it is having in achieving it. We are committed to sharing with the firms examples of what good and bad looks like and having meaningful conversations
about culture in the supervisory process. However, at the moment how it looks in practice is largely at supervisors’ discretion. At the same time, for culture
change to be sustainable, it needs to come from within the firms, driven by the commitment of senior management to make it happen.
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Current internal approach - Joining the Dots
Culture clusters
Business model
and Strategy
Sustainable
Customer-centric
Leadership
Tone from the top
Quality of
communication
Accountability
Purpose and
Values
Ethical values
Used in decision
making
Integrity
People
Performance
management
Incentives
Recruitment
Stakeholders
Attitude to
customers,
regulators etc
Intangibles
Symbols (e.g.
jargon)
Rituals
Stories
Running the
business
Approach to
operating
Oversight
Risk awareness
How do we currently supervise culture?
 The ‘culture clusters’ help supervisors ‘join the dots’ in a way to support more consistency in thinking, share good practice amongst supervisors and
provide a common language to support debate.
 This is not about gathering more information. It is about using existing opportunities and noticing what supervisors already know to inform their view.
 We do not measure culture but we identify cultural signs and ‘join the dots’ to form an overall view that will in turn inform the supervision strategy.
 We ‘join the dots’ from the FCA’s regulatory experience of the firm to form an overall view on the impact of culture on our statutory objectives.
External Communications
•
•
•
•
•
Speeches (Martin Wheatley, Tracey McDermott, previously Clive Adamson)
IOSCO panel on culture
Performance management guidance (GC15/1)
Credible deterrence: the driver for enforcement is credible deterrence, not only changing behaviour at the firm that is the subject of enforcement action,
but also more broadly, so all firms can see what they might learn from the conduct of others.
Very limited guidance to firms on what is our expectation about culture (last culture-specific publication in 2007)
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Currently ongoing workstreams 1/3
Culture Working Group
The working group has been recently re-activated under the leadership of David Blunt and with support from the Culture and Governance team.
The objective of the group is:
To provide a representative forum where the FCA can discuss and review its approach to the assessment and supervision of firm-wide culture as
it impacts the regulatory agenda.
The objective will be achieved by:

Facilitating internal discussion and education about the FCA ‘s approach to culture as it impacts our regulatory agenda

Helping ensure that the FCA’s approach to culture is applied consistently

Facilitating co-ordination and provide input to latest thinking in this arena

Championing the FCA approach to assessing culture in the members’ respective divisions
The current work includes an FCA-wide training programme on culture clusters engaging supervisors from across sectors. The programme will
deliver quarterly Culture Forum (first one to be delivered in Q3), facilitated by the members of the CWG. The Supervisors will learn more about the
current approach and how to use it within the supervision model as well as will be able to share good and bad examples of culture in their
organisation to encourage read-across from the work in their respective areas.
Culture & Governance Specialist Team
The Culture & Governance team’s culture-related work ranges from supporting supervisors on their FSF governance deep dives to answering
technical questions on firms’ governance arrangements. This work is cross-sector and delivers support across the FCA in making judgements
about firms’ conduct and culture. We liaise across the FCA in delivering that technical support as well as in driving forward the FCA’s culture
agenda. We take a key driving role with initiatives that support the importance of getting culture right in firms to support delivering the FCA
objectives.
The Culture & Governance team is also responsible for delivering technical and practical support with implementation of the Remuneration Codes,
in particular to supervisors dealing with remuneration policy, implementation and how poor customer outcomes have an impact on individual
reward.
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Currently ongoing workstreams 2/3
Culture Thematic Project
Project summary:
In our 2015/2016 Business Plan we said that we would conduct a thematic review on whether culture change programmes in retail and wholesale
banks are driving behaviour that promotes consumer protection and market integrity. We will assess two groups of important indicators to see what
they tell us about how ‘tone from the top’ is being reflected and reinforced in day to day practices. These indicators are:
• remuneration, appraisal and progression/promotion decisions taken about middle management (for example, retail area managers, MDs and heads
of trading desks), and
• how staff concerns are raised and acted on.
The thematic review will cover 16 UK banks, both the retail and wholesale sectors, and include desk-based and onsite review work. We expect to
publish our findings Q3 2016 including good and poor practice. We have paused further planning on this project in light of the risks highlighted below.
We have now reviewed these risks in more detail:
Cross over risk from other culture reports:
Recently there has been a number of reports (summarised on the following slides) which look at culture in banks, with some providing examples of
good and poor practice. In addition the BSB has launched an initial pilot of its annual assessment programme for member banks. The initial
assessment will be a high-level review of culture change and include a variety of indicators, some of which include reward and progression, and
whether staff feel able to speak up. This assessment work will cover 10 banks, 8 of which are included in the FCA thematic project. This leads to a key
risks that the FCA’s and the BSB’s work is viewed as contradicting or undermining one another.
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Currently ongoing workstreams 3/3 (Aug 2015)
Accountability – SMCR
Final rules for Senior Managers & Certification Regime were published in July 2015. Still to come:
•
Extension of certification regime to ensure a consistent approach to wholesale activity
•
Final guidance on the presumption of responsibility
•
Consultation/final rules on regulatory references
•
Final rules on incoming branches of overseas firms
•
Final handbook consequential amendments (check if still correct in Sept)
Behavioural economics in organisations
CED has been conducting a review of the literature on behavioural economics as applied to organisations and the lessons for the FCA. A paper is
being drafted that addresses the behavioural economics that underpin firm culture as well as the lessons from behavioural economic for
compliance/enforcement and the behavioural biases of the regulators themselves. The paper is expected to be ready for publication in Q4 2015.
Insight into culture in Agency Brokers and Commodities market
This piece of work is specific to the firms in our agency broker and commodities cluster, recognising that culture is an important factor driving key
behaviours in firms, and is therefore a key tool in the efforts to reduce the risk of further conduct failings in the wholesale space. The work will have a
narrow focus on how pay and incentives are linked to performance as well as progression. The project will assess the formal steps firms have taken
to embed higher standards of conduct throughout the firms’ businesses, particularly into the front line. The outputs will be shared with the industry as a
roundtable and through the Market Watch in Q4 (to be confirmed).
Management, Governance and Culture learning
The course is currently available as part of the intermediate Supervision Pathway and is delivered with the support of the relevant SMEs. A new
version of this course is currently being developed for Authorisations colleagues.
Retail Banking Culture – a note to Retail Banking SLT
Prepared by Philip Hays-Nowak, the note summarises some of the challenges currently faced by the retail banks supervision in making judgements
about culture both in individual firms and across the sector. The note suggests making a better use of existing internal resources available for
supervisors and emphasizes the importance of consistent and strong external messages. Finally, it is suggested to move the conversations about
culture from high-level to more specific.
External engagement
External engagement with latest thinking on culture (behavioural, academic and risk-based) by Directors and Senior Advisors with external bodies
such as McKinsey, PWC, Oliver Wyman and Prof Roger Steare
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External work on culture – Industry panels
Banking Standards Board
The objective of the Banking Standards Board is to contribute to setting high industry standards through requiring participating banks and building
societies to commit to a programme of continuous improvement under the headings of culture, competence and customer outcomes, and to report back
on their performance to the public every year. Current project aims at a high-level report on performance management, recruitment, customer outcomes
and remuneration. The summary findings will be published alongside other reports in the BSB’s annual report in February 2016.
Banking Code and Standards Board/Lending Standards Board
The role of the Lending Standards Board is to monitor and enforce the Lending Code and to ensure subscribers and their agents provide a fair deal to
their personal and micro-enterprise borrowing customers. Among other activities the board conducts thematic reviews, such as on vulnerable customers,
complaints handling and debt collection.
FICC Market Standards Board
The purpose of the FMSB is to define and sustain good practice standards for wholesale FICC markets and raise standards of behaviour, competence
and awareness across those markets and among participants, thereby contributing to the fairness and effectiveness of these markets. The board
promises not to duplicate work undertaken by other bodies and it has not produced any publications yet.
G30 Special Report on Banking Conduct and Culture (Aug 2015)
The report addresses the governance challenges facing the world’s largest banks, their boards, their management, and the supervisors who oversee the
health of the financial system of a whole. The report identifies shortcomings but also good practice in promoting and maintaining a strong banking culture.
The report sees supervision as having a strong complementary role in improving the banking culture. However, it also notes that rule making has a
limited role in the area of values, conduct, and culture.
Financial Services Consumer Panel
One of the projects the panel is focusing on in 2015 is to look at banks existing cultural change programmes and ascertain the extent to which the
publicised changes are impacting on consumers’ experiences of banking services. This research project seeks an articulation from consumers of their
definition of a fair banking culture, and the characteristics that culture would display. The report is to be delivered before year end.
Other
Chartered Banker Professional Standards Board (Chartered Banker Institute), CFA Institute, etc, City Values Forum
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External work on culture – Key publications
Financial Stability Board – Guidance on Supervisory Interaction with Financial Institutions on Risk Culture (Apr 2014)
The focus of this paper is on risk management, specifically defining sound risk culture as one that bolsters effective risk management, promotes sound risktaking, and ensures that emerging risks or risk-taking activities beyond the institution’s risk appetite are recognised, assessed, escalated and addressed in a
timely manner. The paper focuses on risk governance, risk appetite, compensation as foundations of risk culture, and indicates accountability, incentives,
tone from the top as well as effective communication and challenge as key indicators.
PRA – The use of PRA powers to address serious failings in the culture of firms (Jun 2014)
The PRA expects firms to have a culture that supports their prudent management. The PRA does not have any ‘right culture’ in mind, rather it focuses on
whether boards and management clearly understand the circumstances in which the firm’s viability would be under question, whether accepted orthodoxies
are challenged, and whether action is taken to address risks on a timely basis – the focus is primarily on risk awareness and risk management. To that end
culture is ‘supervised’ as part of the normal supervisory activity.
Economic and Social Research Council and the London School of Economics - The Risk Culture Report (2013)
The primary aim of the research was to discover and analyse how the risk culture change agenda was taking shape inside different organisations. The
research revealed that the participant organisations were grappling with several significant trade-offs as they sought to address risk culture, including
centralisation of risk management functions, authority of the risk function and the CRO, risk vs control trade-off and the informality of networks.
New City Agenda – Report on Culture in British Retail Banking (Nov 2014)
This comprehensive report explores how banks are changing their cultures, the barriers they face, and whether this change process is effective. The report
makes a number of recommendations for banks and regulators, including that there needs to be close attention to tracking culture within firms by the
regulators. The report also recommends that the regulators should be wary of ongoing restructuring efforts which may impress investors, but result in
heightened risks within the firms.
The Salz Review (Apr 2013)
A report into Barclays' cultural shortcomings post LIBOR scandal which was deemed an ‘uncomfortable reading’ by the bank’s own CEO.
Economist Intelligence Unit/ CFA - A Crisis of Culture: Valuing Ethics and Knowledge in Financial Services (Nov 2013)
The report shows that although executives recognize the importance of ethical behaviour in the industry, there is still a significant gap between that belief
and the industry’s practices. While building a culture based on integrity across firms helps mitigate risk and makes for a more resilient business, a silo
culture remains pervasive and integrated functional and management approaches to risk-proof organizations remain weak.
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External work on culture – International
US
In the United States, the key enforcement agencies of the SEC, the Department of Justice and the Treasury Department’s Financial Crimes Enforcement
Network have all recently set out guidelines for banks on how they should establish a culture of compliance. The Fed has also increased its attention on
culture, in particular ethics and risk culture. Example speech here
APAC
In Hong Kong the SFC has begun to concentrate on culture, reflecting UK and US approaches but also developing its own. The HKMA, the ASIC, APRA and
the SMA have all, as of the second half of 2014, begun dedicating column-inches to the issue of culture. Malay authorities were one of the first to establish a
Financial Services Professional Board. Despite coming to the subject later than the UK and US, culture has moved swiftly up the agenda. Example speech
available here
ROE
In France the discussion around culture and ethics has been somewhat limited, with regulators and prosecutors still more inclined to use the stick rather than
the carrot to influence behaviour in institutions, with a frequent use of civil and criminal courts. The Dutch AFM is currently developing a framework to enable
supervisors to look at culture in a consistent way across firms with a focus. In Germany, Ba-Fin has proposed a rule-based approach to culture.
IOSCO
A panel of speakers, including Martin Wheatley, examined the role of culture and business conduct in financial industry reform. The discussion reflected the
limitations of regulatory tools and the ineffectiveness of simply escalating fines for financial firms as a means of dealing with poor conduct. Recognising that
good behaviour cannot be regulated or legislated for, the onus for cultural change must lie with firms, starting with senior management accepting personal
responsibility and exhibiting ethical leadership.
EU
To date the European institutions have not focused on culture. Conduct of firms more broadly has been a focus through legislative initiatives such as MiFID,
IMD, UICTs, IORP and others to set standards in areas such as product governance, distribution and governance standards.
Basel Committee
While the committee has not published specifically on culture, the committee has recently updated its guidelines on corporate governance principles for
banks (here) in which the Committee reinforces the collective oversight and risk governance responsibilities of the board and emphasises key components of
risk governance, such as risk culture, risk appetite and their relationship to a bank's risk capacity.
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