Culture and governance have been focal points for the FCA for several years, exploring ways in which firms can improve and change their governance to limit "toxic" behaviours and practices within financial services.


Introduction

Culture and governance have been focal points for the FCA for several years, exploring ways in which firms can improve and change their governance to limit "toxic" behaviours and practices within financial services. Stemming from the financial crash in 2008, the FCA has continued to promote the importance of strong and accountable governance, alongside positive working cultures within firms. 

Between 2013 and 2018, 91% of final notices issued by the Financial Conduct Authority (FCA) to individuals as part of its enforcement process related to culture and governance. The majority of these (above 60%) relating in some way to the failure of individuals to deal with the regulator in an open and cooperative way. 

The difficulty with culture is knowing whether it is good or even working within a firm. There are no standard metrics and no prescriptive measures for this. However, there are some indicators to aid in identifying where issues lie when things go wrong:

  • Do things get worse;
  • Do things go wrong again;
  • How swiftly does the problem get escalated to the right person(s) / committee(s) for effective decision making and action;
  • How many issues go unchecked or not escalated;
  • How many issues continue to be a unresolved;
  • How long do issues remain unresolved once escalated; and 
  • How challenging is it to rectify issues once detected / escalated

The above questions solicit qualitative and/or numeric answers that are capable of being measured as well as providing indicators for how well a firm is able to deal with issues as and when things do go wrong or don’t go to plan. It is therefore important to have a continuous focus on culture, rather than wait for a crisis to happen as poor behaviour can become exacerbated when the pressure is on.

During times of intensified stress a firm with a strong culture will endure and this will mitigate the impact on the firm. It will also aid in maintaining resilience and the performance of the firm to deal effectively with the risk and management of the issue. 

A board that demonstrates good practice in the boardroom and promotes good governance throughout the business will promote a healthy culture and a tone from the top.

"In the wake of Volkswagen’s admissions of cheating US emissions, Bern Osterloh, Chairman of the General and Group Works Councils of Volkswagen AG, said to Volkswagen staff that 'we need in future a climate in which problems aren’t hidden but can be openly communicated to superiors'. I agree; it pays to listen to what is said from the depths of crisis."
Mark Steward, Director of Enforcement and Market Oversight at the FCA

How we can assist you

Addleshaw Goddard (AG) have recently undertaken a project for a Bank to specifically review their current approach to; governance, committee structures, decision making and delegated authorities to demonstrate that policies and terms of reference were approved by appropriate governance forums and that these remained appropriate and effective via an annual review and sign off process.

Our clients benefitted from assurance and peace of mind, for their Board and senior management, that all material regulatory risks, which are likely to result in regulatory sanctions and enforcement action, have been identified and assessed. Our team can provide external independent review on how your firm compares to industry good practice, ensuring your complaint handling practices are more effective. 

We have:

  • Provided guidance on the level of seniority of a decision maker or committee that should sign off policies and terms of reference
  • Developed a heat map showing sign off of terms of reference for senior management committees and who should be accountable and sign off levels
  • Provided a view on whether terms of reference within the scope of the review, appear to be proportionate in their allocation of responsibilities and in line with regulatory expectations
  • Assessed whether the accountable persons, reviewers and sign off authorities are appropriate from a regulatory risk and compliance perspective

Further information

DP18/2: Transforming culture in financial services – issued 12 March 2018

Key contacts

Sarah Herbert

Sarah Herbert

Compliance Director, Financial Regulation
London

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Nikesh Shah

Nikesh Shah

Senior Compliance Manager, Financial Regulation
London

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