FCA discussion paper on transforming culture

The Financial Conduct Authority (FCA)’s recent discussion paper “Transforming Culture in Financial Services” is a set of 28 essays presenting the views of industry leaders, academics and practitioners. It is hoped these essays will encourage further debate on what constitutes, and how to promote, a healthy culture in this sector.

The FCA’s Director of Supervision, Jonathan Davidson remarked that culture is widely accepted as a key root cause of the major conduct failings that have occurred in the financial services industry (e.g. rogue trading, mis-selling, rate-rigging). The FCA defines culture as the habitual behaviours and mind sets that characterise an organisation. The FCA recognises there cannot be a “one size fits all” culture, and instead sets out minimum standards of behaviour in the five conduct rules. The FCA believes that whilst there is no one culture for firms to aspire to, healthy cultures have some specific characteristics. The essays looks at how firms can go beyond rules and standards to achieve real culture change and are grouped into the following key themes:

Is there a “right” culture

The essayists agreed that “culture” involves the values and practices manifested in how people think and behave. Alison Cottrell from the Banking Standards Board notes that culture if often defined as “the way that things get done when no one is looking”. Tom Reader from LSE opines that organisational culture research has led to the identification of “cultural dimensions” that are important for institutional success and avoiding failure, for example: integrity, adaptability and customer and results orientation.

The role of regulation

There is a general consensus that regulating culture should focus on principles rather than rules to encourage firms to critically self-assess the effect of their governance on culture, rather than to narrowly interpret the rule book.

Professor Peter Cartwright from the University of Nottingham notes that the FCA recognises that financial regulation and culture are closely connected. He outlines the tools at the FCA’s disposal, and notes the desire amongst firms to protect their reputation. Accordingly regulators can use publicity to deter certain behaviour. However he cautioned that the use of publicity can have potentially negative consequences.

Differing opinions are offered with regard to whether regulators can “measure” culture. Dr Allen Zimbler, formerly Investec’s Chief Integration Officer suggests that the challenge for regulators is to determine whether members of a business understand their own mission and values.

The role of rewards, capabilities and environment in driving behaviours

Precise targets and performance linked pay can make it harder for people to access their moral mind set. Roger Steare, The Corporate Philosopher, notes the FCA has acknowledged that mis-selling and market manipulation scandals have been perpetuated by people working within cultures driven by a coercive focus on short term profit maximisation. Paul Pester, TSB Bank CEO, highlights the growth in the bank’s customer base and the positive perception of the bank as an employer since rewarding their employees on the sole basis of service provided to customers, rather than sales-driven targets.

Leading culture change

Historically, it was senior leaders that were viewed as having the greatest impact on culture, setting the “tone from the top”. Several essayists argue that in fact cultural change must be driven from all levels of an organisation. The essayists have a shared support of clear values statements. However employees need to feel empowered to create change to truly invest in values, and presumably in recognition of that, UBS devolved responsibility for named aspects of their culture strategy to local groups within the business.


What is clear is that there is, as the FCA acknowledges, no “one size fits all” culture and creating cultures that result in satisfied customers and content staff can only be achieved via a variety of different tools working together. The inclusion of essays might prove a useful tool for insurers and brokers when considering relevant questions to ask of insureds in respect of their culture, prior to writing a risk.

Read other items in the Professions and Financial Lines Brief - September 2018