The FCA’s Emily Shepperd has delivered a clear statement of intent to put conduct and culture at the heart of the regulator’s work.
Speaking to the Westminster Business Forum, the FCA’s COO and Executive Director of Authorisations said there was an expectation for firms and the regulator “to do more, to do better” and said changes such as the new UK Consumer Duty “will require a significant change in many firms’ cultures”.
And she said: “Firms can expect at every stage of the regulatory lifecycle to be asked to demonstrate how their business model, the actions they have taken, and their culture are focused on delivering good customer outcomes.”
Strategic development
Rob Mason, Director of Regulatory Intelligence at our parent company Global Relay, said: “This feels like a concerted effort to prioritise conduct on the regulatory agenda in the UK” adding that it “seems like a greater emphasis than previously seen and maybe a strategic development to demonstrate credible deterrence from all conduct not just market conduct”.
Shepperd certainly mentioned conduct a lot, saying that: “From board rooms to parliament and even to TV studios, it seems that the abuse of power is still all too prevalent”, and reeling off a list of high-profile instances of misconduct in political and City circles before quoting Warren Buffett’s maxim that ‘It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently’.”
She said: “Culture underpins conduct and therefore business performance and confidence” and added: “Culture is not just the slogan on your website. It is the very essence of what your organisation stands for, embodied by how it conducts itself.”
Restoring credibility
Shepperd was also blunt about what was needed in the increasingly tricky area of ESG policy, saying: “We are determined to clean up ‘ESG’ and ‘sustainability’ classifications, restoring credibility and confidence to the system, before cynicism destroys what is a potentially huge and beneficial market.”
There was a particular focus on supervision of wholesale markets, and on tackling misconduct. “We want firms to do their best to stop it from happening in the first place,” she said, “so that means being aware of any past misconduct of new recruits. The best predictor of future behaviour is past behaviour after all.”
Shepperd continued: “Wholesale brokers have told us it is all too easy for individuals who have been involved in misconduct to move from one firm to another, with few questions asked at the new firm. These individuals can become ‘rolling bad apples’, with their misconduct continuing.
“We want firms to take their regulatory referencing far more seriously. If necessary, they should extend probationary periods, add extra monitoring or restrict activity.”
She wants employers to satisfy themselves that new recruits are “fit and proper” but said that “many firms were not properly considering adverse information in regulatory references when recruiting”.
