The Financial Conduct Authority (FCA) has urged financial services firms to improve their working culture, in efforts to protect consumers and rebuild trust in the industry.
In a paper entitled Transforming Culture in Financial Services, published on Monday (12 March), the FCA said post-financial crisis regulatory initiatives alone are not enough and firms must create a culture that embraces the "spirit" of regulation.
The regulator said: "Culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history, causing harm to both consumers and markets.
"For markets to work and firms to be successful, it is critical that they are seen as trustworthy.
"Social expectations have changed, and public interest has raised questions of trust in firms, and in the industry as a whole.
"To increase confidence, firms need to demonstrate they are working in the interests of consumers and the market."
The Senior Managers & Certification Regime (SM&CR), which puts liability on senior members of staff at financial services companies, will soon be expanded to all firms regulated by the FCA. SM&CR includes a code of conduct by which regulated individuals should adhere to:
- You must act with integrity.
- You must act with due skill, care 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 FCA said the extension will "strengthen" the standards it sets, but is not "sufficient" on its own.
It added: "SM&CR provides a robust framework for individuals and leaders to think about their actions, but this needs to move beyond simple compliance with the rules. What else can be done?"
The paper sets out a collection of essays from industry figures on what they are doing to improve culture standards.
In the introduction to the essays, the FCA highlights Wells Fargo as an example of a firm with "a long line of cross-industry organisations where culture is mooted as the root cause of scandals, crises and liquidations".
It added: "The financial services industry, in particular, has demonstrated instances of rate-rigging, rogue trading and mis-selling in the last ten years since the global financial crisis.
"Despite record fines, increasing investigations and an expanding compliance industry, misconduct remains. Why? What have we not learned?"
The FCA said it "remains committed to understanding ways to improve culture in financial services" and will continue engagement with the "external financial services community to gather practical examples of how the insights from this paper can be applied in practice".
It said the collected essays give it an opportunity to incorporate insights on ways to enhance its own approach to supervision, enforcement and policy initiatives.
In addition, the FCA wants to further explore 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'".
It added: "Thus we will continue to pursue questions, such as what dimensions of healthy or unhealthy culture are most relevant to financial services; what skills are required of leadership to promote and manage culture; and what more can be done as a regulator to effect positive change to consumer and market outcomes."
Click here to read the FCA's paper in full.
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