FCA executive on Financial services industry culture: Regulatory perspective

Financial services industry culture drives individual behaviors which in turn affect day-to-day practices in firms and their interaction with customers.

04 April, AtoZForexThe chief executive of FCA – Andrew Bailey, has given a speech on culture in financial institutions at the Hong Kong Monetary Authority conference for independent non-executive directors. Mr. Bailey set out his view of the respective roles of firms’ governing bodies and management and public authorities and he used a point concerning remuneration to illustrate the changes that are being seen.

Financial services industry culture

Cultural outcomes are the product of a wide range of contributory forces. It includes the structure and effectiveness of management and governance, the incentives they create; the quality and effectiveness of risk management; and the willingness of people throughout the organization to enthusiastically adopt and follow to the tone from the top.

Bankers Remuneration

Bankers remuneration is a good example of three important points in the culture debate. First, there is no doubt that the approach towards remuneration will heavily influence the outcome of culture. Second, it is a good example of a virtual no-go area for public policy before the crisis which has changed substantially in the aftermath. Third, the broader history of social norms and attitudes towards remuneration is another important influence on outcomes and thus culture, but those outcomes will in turn also constantly shape the prevailing social norms.

In all of this, the approach is not to cap the level of remuneration, but rather to act on the structure of it and the incentives created. As financial regulators, they do not seek to control the level of pay, outside public policy objectives. But, the influence will affect the culture of firms.

The role as a Regulator

In the FCA, they use a range of supervisory tools and methods to work with firms on issues relating to their culture, such as the firm’s stated purpose, ‘tone from the top’, incentive structures and the effectiveness of management and governance.

In conclusion, culture can be remarkably resilient in the face of attempts to change it. However, if culture is ignored then an opportunity is lost to tackle one of the major root causes of failures. The answer is not to try to tackle the culture of which governance and remuneration are important.

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