How can regulated firms develop ‘purposeful cultures’?

Chess-01-1This week (5 March) the FCA published a discussion paper on ‘driving purposeful cultures’.

How does the Authority define a ‘purposeful culture’ and what is the benefit of such a culture for regulated firms? What steps can Compliance teams take to improve their own firms’ cultures?

What is the purposeful cultures paper?

The discussion paper is a set of essays by industry leaders, professional bodies and culture experts. It supports the theory that healthy purposeful cultures in firms lead to ‘good outcomes for their customers, employees and investors’.

The FCA defines purpose as ‘what a firm and its employees is trying to achieve – the definition of what constitutes success’.

It states that transforming culture in financial services as one its priorities. Firm cultures and embedded behaviours underpin many of the FCA focus areas for 2020, as we identified in our recent blog.

FCA initiatives to increase diversity and inclusion, and to eliminate unhealthy practices, are already underway. But the regulator recognises that there are significant barriers to creating healthy, purposeful cultures – among them a fear of the impact on short-term revenues, driven by the need to meet shareholder expectations, and a fear of the regulator itself.

What does the FCA have to say on purposeful cultures?

Launching the paper, the FCA’s Jonathan Davidson said that:

‘The purpose of a firm sits at the heart of its business model, strategy and culture. Unhealthy cultures and purpose have been at the root cause of too many mis-selling and other conduct scandals in financial services. I want to see strong leadership creating purposeful cultures where it is safe to speak up and diversity is encouraged and listened to.

‘A healthy purposeful culture should lead to better outcomes for consumers and markets, and healthy and sustainable returns for shareholders. It should also lead to a healthier and less stressful environment for employees, and a reduction in increasingly concerning mental health issues.’ 

While the regulator will not dictate to firms what their individual purposes should be, it identifies some common elements of a healthy culture:

  • a meaningful purpose
  • an inclusive environment where it is safe to speak up
  • effective leadership and governance
  • employees that have the necessary capabilities and are motivated by appropriate incentives

How can you improve the culture in your firm?

If you want to explore the FCA’s thinking, you can read the whole 63-page purposeful cultures discussion paper on its website.

Culture has always been a hot topic within financial compliance. Our blog last year on How to implement a culture of compliance has been consistently well-read since we published it.

The crises and scandals the financial services sector has faced over the years could, ultimately, all be said to lead back to the issue of culture. What behaviours are acceptable; what incentives are in place, and do they encourage corporate success at the expense of good consumer outcomes; are there sufficiently robust measures in place to ensure that non-compliant products and promotions do not slip through the net?

All of these are issues embedded within corporate culture, and vital to the good ethical governance of financial firms. Among the actions you might want to consider if you want to improve your own corporate culture are:

  • Making compliance an integral part of your processes. This might mean upgrading your review and approvals process to make Compliance sign-off harder to overlook. It might mean introducing an element of automation to make your procedures more robust (as well as quicker and easier, encouraging people not to skip them).
  • Working as one with your business. Ensuring that teams across the business collaborate effectively in order to create an environment that fosters good behaviours. Compliance isn’t the preserve of the Compliance team – everyone in your firm should be accountable.
  • Encouraging transparency and honesty. An environment where it’s ‘safe to speak up’ is one of the FCA’s indicators of a healthy culture. Employees shouldn’t feel afraid to share regulatory breaches or near misses; these are what enable you to learn and to implement a culture of continuous improvement.
  • Ensuring one stakeholder’s priorities don’t contradict or jeopardise another’s. Putting shareholders’ needs above other interested parties can lead to the wrong behaviours being incentivised and a blind eye being turned to poor governance.

What next for the regulator’s work on purposeful cultures?

The FCA is not seeking formal feedback on this discussion paper. Instead, it says that it aims ‘to encourage discussion and start a much larger conversation’.

The paper will form the start point for future work on the theme of ‘purpose’.

Find ways to embed a compliance culture within your firm

If you would like to read more about compliant cultures, and more importantly, practical tips on how you can create this sort of culture within your own firm, you might want to download a copy of our whitepaper, How to embed a compliance culture into your business. You can get a copy from our resource library.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

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