The U.K. Financial Conduct Authority has published a discussion paper on transforming culture in financial services which presents views from academics and industry thought leaders. The paper is intended to provide a basis for stimulating further debate on transforming culture in the sector.

The discussion paper, “Transforming Culture in Financial Services,” consists of a collection of 28 essays that discuss what a good culture might look like, the role of regulation and regulators, how firms might go beyond incentives, and how to change behaviour for the better.

“Culture and governance is a priority for the FCA, and we have a strong focus on the role of the individual as well as the firm," the FCA stated. "The FCA has considered the role of leaders, incentives and capabilities, and governance of decision making.”

The introduction of the Senior Managers and Certification Regime (SM&CR) is an example of this, which sets minimum standards for the behaviour of financial services staff and aims to promote a culture in which senior managers take responsibility for identifying where harm might occur, and take action to prevent it. The SM&CR creates a formal link between the behaviour of individuals and the conduct of the firm.

“Culture may not be easily measurable, but it is manageable," said Jonathan Davidson, FCA Executive Director of Supervision - Retail and Authorisations. “So, firms can and should take responsibility for ensuring their culture is healthy for both their employees and customers, which can complement and support their business strategy.”

“We as a regulator have long gone beyond having the mindset that simply complying with rules is enough,” DAvidson added. “However, we don’t believe a one-size-fits-all culture is the right way to go, so we want to promote a discussion and consensus on the essential features of a healthy culture and how firms, regulators, employees and customers can help deliver that culture.”

Industry action

The FCA said it is not requesting formal feedback on this paper, but would like all those with an interest in financial services to consider the issues in the paper and to engage in the debate about what constitutes a healthy culture and how to promote it.

This paper offers actionable insights for financial services leaders and practitioners to consider how they effect change in their organisations, including:

using behavioural science to guide incentives and cultural change

looking beyond the role of leadership in effecting change

applying strategic focus to the continuous process for adapting culture

fostering environments of trust to encourage openness and learning

applying a systems perspective in assessing both internal culture and external influencers

What's next? “As a regulator, the FCA remains committed to understanding ways to improve culture in financial services,” the FCA stated. “We intend to continue our engagement with the external financial services community to gather practical examples of how the insights from this paper can be applied in practice.”

“Alongside our industry partners, we hope to 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.’ Thus, we will continue to pursue questions in this domain.”