Culture and governance

Each firm’s culture is different. We do not believe there should be a one size fits all model and we do not prescribe what any firm’s culture should be. It is the responsibility of everyone in financial services to focus on culture, and we expect leaders in firms to manage the drivers of behaviour in their firms to create and maintain cultures which reduce the potential for harm.

We are working to promote healthy cultures across the industry. Firms’ cultures have been a major root cause of conduct failures, and our work supporting firms in delivering real and sustainable culture transformations will help prevent harm caused by inappropriate behaviours.

Culture is at the heart of how we authorise and supervise firms, as well as look for improvements where they are needed. Beyond this, we want to use our position as a regulator to listen and encourage open discussions on the topic with the aim of advancing the debate, incorporating our findings into the way we regulate firms and encouraging real and sustainable cultural transformations in financial services.

Our approach to culture

In our Approach to Supervision[1], we outline the focus we place on business models and culture as the key causes of harm in firms.

We define culture as the habitual behaviours and mindsets that characterise an organisation. We do not attempt to assess mindsets and behaviours directly; instead we recognise that there are many drivers of behaviour which firms can identify and manage. As a regulator, we focus on 4 key drivers which we believe can lead to harm:

• Purpose
• Leadership
• Approach to rewarding and managing people
• Governance

Through our supervision of firms, we determine how effective each of these drivers of behaviour are in reducing the potential harm arising from a firm’s business model.

Transforming culture in financial services

The financial services industry is working collaboratively to transform its culture.

We recognise that firms face challenges in driving the right behaviours to create healthy, sustainable cultures. In our external engagement work, we listen to and encourage open discussions on this topic. We aim to facilitate thought leadership, develop solutions and share insights to encourage firms to act to make changes towards healthy, sustainable cultures.

In 2018, we published our Transforming Culture Discussion Paper[2]. In this paper, we asked thought leaders to discuss what a healthy culture might look like, the role of regulation and regulators, how firms might go beyond incentives and how behaviour could be changed for the better.  

We followed this with the Transforming Culture Conference[3]. Our aim was to develop thinking by facilitating and encouraging open discussion among a multidisciplinary community. The Transforming Culture Conference summary[3] contains the key ideas that were raised. It also details 4 themes we are exploring further, continuing our approach of incorporating knowledge and insights from a variety of perspectives.

The themes we are exploring are:

• Psychological safety over fear
• Leadership and management capabilities[4]
• Incentives and recognition[5]
• Firms’ assessment of culture

We are not doing this alone. The success of our work depends not only on the involvement of firms and their leaders but everyone with an interest in transforming financial services culture for the better. Our work so far includes how we are transforming culture by improving the accountability of individuals in financial services, including leaders, by extending the Senior Managers and Certification Regime[6] (SM&CR) to all authorised firms.

Speeches

• Class, cliques and social codes: doing more on diversity[7] - Speech by Christopher Woolard
• The importance of diversity[8] - Speech by Andrew Bailey
• Opening up and speaking out: diversity in financial services and the challenge to be met[9] - Speech by Christopher Woolard
• Realising the benefits of purposeful leadership[10] - Speech by Jonathan Davidson
• Transforming culture in financial services[11] - Speech by Andrew Bailey
• Culture and conduct – extending the accountability regime[12] - Speech by Jonathan Davidson
• Culture in financial institutions: it’s everywhere and nowhere[13] - Speech by Andrew Bailey
• Getting culture and conduct right – the role of the regulator[14] - Speech by Jonathan Davidson