Good culture can be an opportunity for growth


Financier Worldwide Magazine

July 2015 Issue

July 2015 Issue

Culture. It can be a nebulous word for those involved in regulatory compliance. Difficult to define and often interpreted in different ways depending on who you talk to. But overlook culture at your own peril. Read the FCA’s recently published 2015/16 Business Plan, and you will see conduct risk as the priority area for the coming year. This should hardly come as a surprise. The FCA is first and foremost a conduct regulator while chief executive Martin Wheatley has continually challenged financial institutions to ensure that good customer outcomes are the catalysts for their actions, rather than commercial or financial incentives.

It is not unfair to suggest that regulated firms have work to do in order to meet the regulator’s new culture focus. Central to this will be improving conduct risk management methodology and that all staff, from the top to the bottom, ensure compliance becomes more than just a box-ticking exercise. But the pursuit of good culture shouldn’t just be in response to legislation or announcements about crackdowns. Rather, firms should view it as an opportunity for growth. The financial services industry finds itself with an opportunity to rebuild the trust that was previously lost during the financial crisis, and getting culture right will be an important aspect of this.

There are three ways firms can address the issue of culture.

Firstly, over the past two years, since the creation of the FCA and PRA, there has been an enormous focus on compliance and change, and rightly so. However, more firms need to invest both time and money in more intelligent training and the development of appropriate reporting systems. Stopping to properly address these issues is one area where the opportunity for growth lies. Having experienced compliance staff is a must, but building a solid compliance function will bear a significant cost. However, and while not proportionate for all firms, strong IT systems with a state of the art compliance and risk reporting function are an equally important investment, despite representing a substantial expenditure.

In addition to investing in technology and compliance, businesses must invest time in developing and improving stronger relationships with the regulators. Mid-sized companies in particular tend to suffer the most from a lack of understanding about regulatory compliance and direction of travel, largely because they generally can’t afford teams of regulatory specialists. In order to overcome this obstacle, the challenge for these companies is in establishing transparent relationships with the regulator. Of course, this can be difficult given that a lot of mid-sized firms don’t have a dedicated relationship manager at the FCA, and therefore there is no obvious contact point for them to build a relationship with. In turn, the regulators themselves need to encourage businesses to view them as somebody to work with, rather than around. Undoubtedly, the industry as a whole will weather regulatory scrutiny and change much more easily if it can build and maintain these relationships.

Finally, the forthcoming launch of the Senior Managers Regime in March 2016, designed to “make individual responsibility in banking a reality”, following recommendations by the Parliamentary Commission on Banking Standards, shouldn’t merely be considered a box-ticking exercise. The SMR will have a major impact on many financial services firms, not least allowing greater scrutiny and disciplinary action on senior staff when things go wrong.

Implementing these strategies will not be without their own challenges. Financial services firms face pressures on resources in terms of people, training and systems, which are all barriers to improving culture. This, coupled with a lack of clarity from their perspective on what the regulator defines as good culture, inevitably impedes progress. Furthermore, regulation is always evolving. What is good risk conduct and culture today might not be tomorrow. Unsurprisingly, uncertainty over forthcoming legislation makes it difficult for financial services firms to invest capital in strengthening structures and practices.

But the frenzied activities of the regulators over the last two years appear set to slow, with fewer large-scale thematic reviews likely. And while businesses cannot afford to consider this as a potential reprieve, they should use this period as an opportunity to get their house in order.

Wealth managers, for example, came out of the financial crisis relatively unscathed, by sticking to the traditional approach of curating personal relationships and taking a longer view. Now the sector finds itself with an opportunity to leverage that trust and target a larger share of the investment market. The opportunity for growth depends on their ability to respond proactively, and in doing so communicate to both the regulators and their customers their commitment to getting culture right.

The same model applies to nearly all financial services subsectors. There is little doubt that all will have to make improvements. The winners will be those who understand that conduct and culture is more than a legal requirement; it is a business strategy.


Fiona Raistrick is a partner at BDO. She can be contacted on +44 (0)20 7893 2912 or by email:

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Fiona Raistrick


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