* This article was originally published in the Winter Edition of the GRC Professional Magazine , click here to log in to you member account and download your copy.
In March, the Financial Conduct Authority (FCA) published a collection of essays, entitled Transforming Culture in Financial Services.
The collection was compiled as part of the regulator’s attempt to understand culture. While the catch-cry has shifted from ‘culture’ to ‘trust’, the basis for establishing that trust still centres on having ‘good’ culture and ‘good’ conduct within an organisation.
The collection of essays has a range of contributors—from those working in the financial services sector, to regulators, and academics—all of whom are looking at ways to modify behaviour in the sector to gain the best outcomes for financial markets and for clients.
In the foreword, Jonathan Davidson, Director of Supervision for Retail and Authorisations at the FCA, writes:
Changing culture can be hard. Some still see changing culture as ‘soft’ discipline: and clarifying how to define, measure, and manage it in practical term is difficult.
The introduction poses the question: “is there a ‘right’ culture?” The consensus seems to fall between banks taking an ethical approach and positive outcomes for the markets and their consumers.
“Our essayists argue that firms can have their ethical cake and eat it,” writes Davidson. “A consumer-focused culture makes firms more attractive to potential customers and talented employees, which, in turn, increases profits.”
The role for regulation sits somewhere outside of this self-regulatory dynamic. There is the suggestion that rules sometimes lead organisations down the pathway of obeying the letter of the law instead of its spirit.
This falls in line with the regulatory approach that Oxford University’s Professor Christopher Hodges addressed at ASIC Forum earlier this year, when he spoke about regulators looking towards establishing a more supportive regulatory approach than a punitive one. With a more supportive-style system in place, businesses are more likely to be open about their mistakes, especially if they know the regulator will help them get it right for everyone’s benefit. However, this approach is only useful for organisations that are already trying to do the right thing.
On the flip side, this conversation exposes the ignorance of some regulators that have failed to understand that compliance—and compliance professionals and teams—is about more than just complying with existing legislation, but that it is also about building the policies and frameworks upon which RegTech solutions will depend on to work.
It could be argued that compliance professionals are integral to building the internal policies required to help influence business units within organisations to be more ethical.
In looking at ways to lead cultural change, the introduction states:
Traditionally, senior leaders were thought to play the biggest role in driving culture, since they set the ‘tone from the top’. Several of our essayists argue that while senior leaders do play a key role in influencing culture and should be held to account for cultural failings, everyone influences the culture they are in, from middle managers to junior employees, and even external forces such as monetary policy and western culture itself.
While regulators have been pushing the tone from the top, and even the tone from the middle mantra, what they often tend to forget is that the compliance professional is really just an extension of the board. They are the ones asking the questions of the business so that the board can learn the answers.
ASIC’s own senior executive in strategic policy, Andrew Fawcett, contributed his thoughts on the topic by looking at methods to monitor and help originations determine their strengths and weaknesses through the use of providing benchmarks. Again, however, such support is only of-benefit to those already wishing to do the right thing.
While much of the conversation in this collection is quite high-level, it does provide a basis for the future of regulation and suggests some regulatory solutions for helping organisations meet both regulatory requirements and community expectations.