Culture and the role of Training & Competence


It seems to me that everyone who speaks on behalf of the FCA includes at least a reference to culture in their speeches. The leaders of our firms are charged with the responsibility to set the tone of the organisation – they don’t always get it right as the cases of Tidjane Thiam(1), Jes Staley(2) and Jonathan Burrows(3) show. More recently Conor Foley(4) found himself on the receiving end of the FCA’s enforcement action for allegedly engaging in market abuse. Fortunately, these incidents are rare.

On a corporate scale, Lloyds Bank, Bank of Scotland and The Mortgage Business(5) were all fined by the FCA this year – for failure to properly handle mortgage customers in payment difficulties or arrears. As a compliance consultant I periodically look at enforcement decisions such as these to identify areas where I can help my clients review their own procedures and processes. After all, if organisations as large as these with their resources can get it wrong there may be lessons for smaller firms to learn without the FCA’s enforcers getting involved.

One of the statutory objectives of the FCA is to protect consumers and by and large firms and individuals within them want to do the right thing. The challenge I think about in my work is how do we provide an environment in which people feel able to identify and change areas where improvements can be made.

I take the comment about ‘outlier firms’ as being a recognition that most firms are doing OK but can’t be complacent

At the start of the year a Dear CEO letter came out for wholesale general insurance firms in which the FCA stated: Following recent, publicised incidents of non-financial misconduct in the wholesale general insurance sector, I am writing to set out clear expectations that you should be proactive in tackling such issues. We expect you to identify what drives this behaviour and, where appropriate, modify those drivers to shape proper conduct. Then at the start of September a letter was sent to personal and commercial lines insurance intermediaries with the following comment: We are developing a series of supervisory strategies for each portfolio which allow us to monitor all firms effectively, and target those firms that pose the greatest risk of harm. We will be proactively monitoring indicators which seek to identify firms that pose a higher risk in each area of harm outlined and expect to undertake additional testing of these risks with these outlier firms. Where we conclude that firms, and/or individuals are not meeting our expectations, we will act.

I take the comment about ‘outlier firms’ as being a recognition that most firms are doing OK but can’t be complacent. The impact of Covid-19 is likely to take a long time to work through the economy and will undoubtedly put regulated firms and their clients under pressure. How they respond will be an indicator of their culture – the effort the regulated firms put into T&C is very much a part of that.

The FCA have been encouraging firms to consider their resilience financially and operationally and to be prepared to make an orderly exit from the market if circumstances require. It is against this background that all firms not just those in general insurance should look at the three key drivers of harm identified in the letter.

All three apply to all sectors of the regulated world:

  • ineffective governance and oversight of businesses
  • incentive arrangements that do not support a positive conduct culture
  • business models which provide poor control over sales and renewals and conflicts of interest including through Appointed Representatives

The first is clearly the target of SM&CR which I have no doubt has been exercising many readers of TC News for several years now. Helping people to identify and understand their responsibilities and the practical impact of the Conduct Rules has been our bread and butter.

The second is perhaps less directly in the remit of T&C but where we see arrangements that could incentivise non-TCF behaviour we can challenge senior management to review those arrangements, particularly where they focus on financial metrics, without taking broader factors into account.

The third I see as key to our role and links to the certification regime. If people are well trained and understand why certain things have to be included in the sales process they will be less likely to cause problems. Fortunately, it is now rare for me to hear compliance or training described as the business prevention people. I like to think that firms accept that in terms of risk to their business it makes sense to have good people consistently doing the right thing.

I read a piece recently which referred to the difficulty of changing culture being due in part to it being generational. It does take time to embed a healthy culture and the process is built on leadership who identify the key drivers of culture within their firm and who make changes where required. In larger organisations there is a danger that the messages from leaders may get diluted as they progress through the management chain so it is important for leaders to be visible.

Perhaps part of the T&C responsibility is to help people to focus on ‘should I be doing this?’ rather than ‘can I do this?’. As people continue to adjust to new working patterns as we emerge from coronavirus it is possible that the risk of misconduct will change and that our messaging will have to change too. Keep asking the question ‘how do you think we could do better?’ and hopefully your firm will be among the survivors (and not attract attention from our regulator).







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Compliance Cubed Financial services is constantly changing - my passion is helping firms function effectively and in compliance with FCA regulation

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