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Financial services firms have worked for decades to create and maintain cultures of compliance, with varying degrees of success. In a recent publication, “Transforming Culture in Financial Services,” the Financial Conduct Authority (FCA) explored the way culture is fostered and measured inside firms.

In the paper, the FCA defines culture as “the habitual behaviours and mindsets that characterise an organisation.” While defining culture is relatively simple, measuring it is not. There is also not a single solution or quick fix to implement a strong culture. However, there are certain common denominators in firms with healthy cultures:

  • Regulations must hold firms – and individuals within those firms – accountable for their actions. Firms and personnel must, in turn, seek to comply with those regulations.
  • In firms with strong cultures of compliance, leaders seek to manage both their own behaviour, and that of their employees.
  • Everyone in the firm is responsible for culture, not just the firm’s leaders. Culture should be a collaborative effort.

Exploring Culture Through Essays

Rather than simply providing the FCA’s input on what constitutes a strong culture of compliance, the discussion paper is largely comprised of a series of essays written by subject matter experts with diverse backgrounds. These essays are intended to help firm s identify ways they can strengthen their own cultures. Instead of advocating for a one-size-fits-all culture, the essays included in the paper expounded on four key themes:

1.      Is There a “Right” Culture?

The essayists’ consensus was that culture is ultimately about behaviour. Every organisation has a culture, whether it’s something they are aware of or not. Some firms fall into the trap of trying to make culture all about making clients happy. However, focusing on clients at the expense of employees or shareholders can lead to a culture where those groups feel unappreciated and under-utilised. When it’s done right, culture should benefit clients, employees and company shareholders.

2.      Managing Culture – the Role of Regulation

Regulation plays a key role in culture. The rules firms must follow provide inherent incentives to comply with those rules. A firm that violates one or more rules can face significant consequences. However, while regulations can lead to firms following the letter of the law, they cannot make firms follow the spirit of the law. Therefore, firms should not simply rely on rules or regulations to create or transform their company’s culture. With respect to the Senior Managers & Certification Regime (SM&CR), its provisions requiring accountability and minimum standards should certainly help firms’ culture. However, it’s not enough alone to create meaningful cultural shifts.

3.      The Role of Reward, Capabilities and Environment in Driving Behaviours

Sales targets and incentive compensation, long fixtures in the financial services industry, influence behaviour. Rather than improving the firm’s culture, however, these types of rewards may negatively influence it. Other ways of rewarding employees’ actions, such as social rewards, praise, status, and respect, can help drive the behaviour firms want rather than encouraging employees to act selfishly.

4.      Leading Culture Change

Trust is a key element of cultural change. While firms should strive for a compliance “tone from the top,” with senior leaders engaged in ensuring the organisation is in compliance, those efforts may not be enough to drive change. The entire organisation, from senior leaders to the most junior clerical assistant, need to work together to align the firm with its values. There is no quick fix to achieve this cultural shift. Rather, it should be viewed as an ongoing and continuous effort.

Evaluate Your Firm’s Culture

Is your firm’s culture designed to encourage compliance with both the letter and the spirit of the law? The FCA’s paper offers actionable insights designed to help firms strategically focus on continuing to adapt their cultures, use behavioural science to guide incentives and create cultural shifts, foster environments of trust, and look beyond regulations themselves. Firms are encouraged to read the entire paper and collection of essays to identify best practices that could enhance their cultures and compliance efforts.

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