The U.K. Financial Conduct authority has published its second industry feedback report on its 5 Conduct Questions, a key component of its wholesale banking supervision. In a tweet today, the FCA stated that the second report includes details on “how banks can encourage staff in front, middle, and back office, and control/support functions, to be responsible for managing conduct of their business.”
In 2015, the FCA introduced its 5 Conduct Questions for wholesale banking. Since then, wholesale banking firms operating in the U.K have “invested substantial efforts in change programs related to conduct and culture,” the FCA stated.
When firms started addressing the 5 Conduct Questions, they developed their own definitions of conduct risk and shared their experience with the FCA, providing examples of what they thought did and didn’t work well in the design and implementation of their change programs. Last year, the FCA published its first ever 5 Conduct Questions report summarizing what firms had been saying, accompanied by some of the FCA’s own observations.
The FCA’s second 5 Conduct Questions report, published in April, indicates that most firms have made further progress. “Once again, we are feeding back to industry what we’ve been told by firms, accompanied by examples of good and poor practice and some observations from us,” the FCA stated. “It’s clear that program design has implications for speed of implementation, staff buy-in and, ultimately, continuing effectiveness.”
The report includes:
The importance of a design and overall governance;
Identifying conduct risk;
Fostering staff engagement and responsibility;
Provision of broad support for staff;
Insightful use of management information; and
Considering the risks or unintended consequences of internal initiatives.
Moving forward, the FCA said it will be extending the five questions approach to include other segments of the wholesale sector. Initially, this will include areas such as asset management, trading firms, and trading venues.
Additionally, the FCA's 2018/19 Business Plan sets out its overall objective of improving how financial markets operate and the FCA’s operational objectives relating to protection of consumers, the integrity of markets, and the promotion of competition. “Among other things, the 5 Conduct Questions program,” the FCA said, “clearly supports our cross-sector efforts on firms' culture and governance.”