The FCA is making senior management responsible for the culture in their firms
Andrew Bailey, the chief executive of the Financial Conduct Authority (FCA), says that the FCA is making senior management responsible for their firms’ culture. He explains that changes in banking culture will take time to reflect the implementation of the senior managers and certification regime and insurers scheme introduced by the FCA over six months ago. He reports that the FCA has generally seen responsibility being taken, though he accepts that there is still work to be done. The regime will extend to cover all financial services companies, including asset managers and hedge funds, in 2018.
At the end of last year, it was reported that the Financial Conduct Authority was dropping its review into banking culture. This led to a number of commentators saying the FCA doesn’t care about culture in financial services. I have been chief executive of the FCA for three months and I can tell you that nothing could be further from the truth. Culture matters a great deal.

However, culture is not a tangible thing that can be taken down from a shelf and inspected. Culture is a way of doing things and a set of attitudes that determine behaviour by everyone involved in the organisation. It is shaped by many influences – incentive structures, risk management, the effectiveness of management and governance – all of which are examined by FCA supervisors in the firms we regulate. Getting the culture right means that the senior management of firms needs to set the right tone from the top – they need to take responsibility for the culture in their firms.

Just over six months ago, thesenior managers and certification regime was introduced for all banks and building societies, and a parallel regime came in for insurers. These changes place responsibility at the heart of how these firms conduct themselves.

As chief executive of the FCA, I am responsible for the organisation that regulates the conduct of over 56,000 financial firms. I am rightly held to account – byparliament and ultimately by the public we serve.

I believe in taking responsibility for my actions and that the FCA must live by the principles it espouses.

Just before the new accountability regime was introduced, I was at an event debating the concept of responsibility – with many arguing that it is a difficult thing to define. A young lady stood up and said that she didn’t know what all the fuss was about – she was teaching her children to take responsibility for their actions – so why should people who work in financial services be any different?

Six months on is a good amount of time to see how the new regime is bedding in. Generally, we have observed that firms are taking their responsibilities seriously and have broadly got the regime right. But we recognise culture change takes time and there is still more to do. So we have to keep a watchful eye on the progress firms are making.

Since the regime was introduced, we have been undertaking work to ensure that senior manager responsibilities are properly allocated and understood in firms. In some cases, we have seen evidence of overlapping or unclear allocation of responsibilities. In other cases firms appear to be sharing responsibility amongst more junior staff, obscuring who is genuinely responsible. This goes against the intention of the senior managers and certification regime and should not continue.

The regime will be extended in 2018 to cover all financial services firms, including asset managers and hedge funds. This means that the same high standards will apply in both the banking and the “shadow banking” sectors and supports a level playing field for competition.

Trust in financial services will only be rebuilt when the public truly believe that senior managers in our financial institutions are taking responsibility for the actions they take.