Conduct and Culture in Financial Services

Forensic & Litigation Consulting | Risk & Compliance (Reprint)

November 26, 2018

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Could you explain the difference between good conduct and good culture?

A broad consensus has emerged in how to define ‘culture’ and ‘conduct’. Culture is commonly viewed as the values, attitudes and assumptions manifested by a company in its interactions with stakeholders, while conduct is seen as the way in which these characteristics reveal themselves in behaviour. Agreeing what ‘good’ looks like, particularly with respect to culture, has proved more challenging. This is demonstrated by the FCA’s decision to drop its proposed 2016 thematic review of banking culture, blaming the “idiosyncratic nature of individual institutions” for the difficulty of issuing generalised guidance. A firm’s culture must be unique – consistent with its strategic objectives, values and approach to interacting with stakeholders. It is imperative that a firm’s culture promotes the fair treatment of customers, particularly in how it incentivises employees to act, and this is where conduct – the measurable behaviours that influence customer outcomes – becomes so important. Good conduct follows good culture.

In the financial services sector, to what extent has the regulatory focus shifted from conduct to culture?

In March 2018, the FCA published its Discussion Paper on ‘Transforming Culture in Financial Services’ announcing cultural reform as a priority. Proscribing a ‘one size fits all culture’ is impossible, making the enforcement of good culture hugely challenging, as shown by the FCA’s recent investigation into the Royal Bank of Scotland’s Global Restructuring Group (‘GRG’). Despite identifying major concerns with GRG’s culture and the prioritisation of profit above the fair treatment of customers, the FCA was unable to act against GRG’s senior managers, partly because the cultural issues did not represent a failure of fitness or propriety. The introduction of the Senior Managers and Certification Regime (‘SMCR’), will help to increase senior managers’ individual accountability for encouraging appropriate organisational behaviours but this is more of a conduct consideration. Indeed, as the FCA highlights, a focus on supporting firms with their unique cultural challenges will be needed to enable change.

This article is republished with the permission of Risk & Compliance, Copyright ©2018. All rights reserved.

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