Emily Sheppard, Chief Operating Officer at the FCA, spoke at the City & Financial Global 10th Annual Culture and Conduct in Financial Services Summit on Tuesday, about the importance of healthy firm cultures in the financial services industry. Here’s a summary of the main highlights.

Culture drives conduct

The FCA views culture as a key driver of conduct. The regulator’s objectives are to protect consumers, ensure market integrity and support the UK’s economic growth and competitiveness. Failures in consumer protection and market conduct often stem from failings in culture and governance. Culture shapes decisions and actions, having an impact on consumers, markets, and the economy.  

This was signalled last year by the FCA’s Jamie Bell when discussing voice surveillance. He said that in the regulator’s experience there is a strong correlation between market abuse failure, other types of compliance failure, and non-financial misconduct.

Economic growth

Sheppard said the government has been clear that growth is its number one mission. The FCA recognizes the financial services sector’s role in economic growth. Achieving growth requires risk-taking, which is best supported by strong, inclusive cultures. Diverse perspectives within these cultures help prevent groupthink and lead to better decision-making around risk.  

Psychological safety

Citing a Google study (Project Aristotle), Sheppard emphasized the importance of psychological safety in teams. The study looks at what makes teams successful and found that where individuals feel safe to speak up, can challenge ideas, and are able admit mistakes, they outperform others. This translates to the financial sector where open dialogue, constructive challenge, and learning from failure fuel innovation and long-term success.  

“One of the clearest warning signs of a failing culture is non-financial misconduct behaviors like bullying, harassment and discrimination,” said Sheppard.

FCA survey

An FCA survey revealed 2,347 allegations of non-financial misconduct (such as bullying, harassment, and discrimination) across approximately 1,000 wholesale financial firms in 2023. This equates to roughly nine reports per day, and likely represents an undercount, said Sheppard. The FCA is concerned about how firms handle these behaviors, as they can significantly affect the work environment and decision-making. Toxic behaviors can drive away talent and raise questions about a firm’s risk management and damage reputation.  

Regulatory concern and SMCR

The FCA considers firm cultures a regulatory concern, not just a moral issue. It is updating rules and guidance on non-financial misconduct and plan to release more details “shortly.”

It is also working with the PRA on DEI (diversity, equity and inclusion) along with the government on developing employment rights on gender action, plans and disability and ethnicity pay gaps. However, Sheppard stressed that rules and guidance alone are insufficient and said firms will need to take action when abuse does occur.

She also reminded the conference of senior managers’ personal responsibility under SMCR. She said the regime has been largely successful and has contributed to better governance, sharper decision-making, and more effective risk management so that the UK is now seen as a global leader on accountability. She added: “The SMCR’s primary aim is prevention, rather than sanction.”

FCA’s own culture and enforcement

Sheppard highlighted the FCA’s commitment to a healthy culture, including robust people policies, investment in employee development, and an evidence-based DEI program. She said its 2024 employee survey showed improvement, particularly in culture.  

“Building a strong positive culture can sometimes feel like an uphill battle but it’s also one of the most powerful tools we have to drive success to gain a competitive advantage and boost longer term resilience,” she told the event.

The FCA is also streamlining its enforcement processes to achieve faster results. Recent cases with Volkswagen Finance and Starling Bank were closed in 13 and 14 months respectively, a significant improvement over the previous average of 42 months.

Culture is contagious

Sheppard concluded by emphasizing that culture is contagious. Positive cultures characterized by respect, integrity, and accountability can act as a “social immune system” within an organization. She challenged the audience to consider what kind of culture they are spreading, emphasizing its impact on both individual firms and the broader financial system.  

During the Q&A, Sheppard acknowledged the complexities of defining and addressing non-financial misconduct, especially concerning private life. “It is an ethical decision,” she said.

She emphasized that it is ultimately up to the firm to determine if the behavior in question could affect others or create a fear within the workplace. She also discussed the importance of looking beyond non-financial misconduct to address the broader behavioral drivers that can contribute to issues like Libor and FX manipulation.