1 00118601 Emerging themes 2019 A4 AW v31 combined - Page 79

In March 2016, the FCA introduced the Senior Managers
and Certification Regime (SMCR) for banks, with the
intention of identifying the most senior executives in a
firm and holding them accountable for any instances of
misconduct on their watch. Last month, the regime was
extended to insurers, and at the end of this year the
regime will be extended to all FCA solo-regulated firms.
This will include claims management companies
following them becoming FCA regulated on 1 April.
In September 2016, the FCA and PRA introduced rules
and guidance requiring banks and insurers to put in
place formalised whistleblowing procedures. These
measures were designed to address the PCBS’ finding,
in relation to the LIBOR scandal, that “many people
turned a blind eye to misbehaviour and failed to report
it”. The rules included a requirement to appoint a
non-executive director to be the “Whistleblowers’
champion”. Although we are not aware of any current
plans to do so, like SMCR, this regime could be
extended to all financial services firms in the future
(it currently serves as guidance).
This year, following extensive public feedback, we can
also expect the FCA’s new public directory, including all
regulator-approved senior managers and firm-approved
certification function holders who work in the UK financial
services industry, to be formally launched.
Wholesale change
The FCA’s Business Plan for 2018/19 again cited culture
and governance as one of its cross-sector priorities.
The extension of the SMCR, the FCA’s new Public
Directory and a review of firms’ remuneration
arrangements form part of this. However, the FCA’s
view is that such rule-based changes alone are not
going to bring about the wholesale cultural change it
feels is still needed across the financial services industry.
The Business Plan states “We will continue to support
and engage with firms, sharing our expectations and
working to promote effective culture and governance
across the industry”. Firms are being put more squarely
in the hot seat to take ownership and effect change
– and the FCA seems to view itself a facilitator in
effecting such cultural transformation.
Lawyer, London
1.the need for a system-wide approach to change
that considers the influences on every individual
within a firm
2.the importance of organisations providing a
psychologically safe environment for employees
to speak up
3.that regulation can only go so far in improving culture.
The paper included potential actions for leaders in firms
to consider how to effect change in their organisations
and questions to stimulate further thought. Interesting,
the possible steps included using behavioural science
to guide incentives and cultural change, and we
understand that the FCA is using psychologists to assist
them with their activities in this area.
In summary
Firms need to look carefully at their strategic goals and
ensure that they are aligned to promote and reward
good culture. This does not just mean stamping out bad
behaviour – although firms’ and regulatory action in this
regard will continue to play an important role – but,
fundamentally, recognising and rewarding the value of
good behaviour for sustainable success. The FCA’s
Discussion Paper last year proposed various measures
that firms could take to tackle this issue. Only some of
these may resonate with your firm – each firm is different
and what is a “right culture” for one may be different to
another. However, one thing is clear: boards and senior
managers ignore this issue at their peril. The enforcement
statistics in the FCA’s last Annual Report tell their own
story: a 400% increase in investigations in relation to
firms’ culture and governance, and this trend continues.
This issue is here to stay top of the regulatory agenda –
and therefore top of firms’ agendas too.
Senior Associate,


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