Andrew Bailey warns banks to be less arrogant and adopt open cultures
Incoming Financial Conduct Authority (FCA) boss, Andrew Bailey, has told banks they need to change their attitudes and approaches if they want to avoid future scandals.
Speaking at the City Week 2016 conference, Bank of England regulator Bailey told attendees that shifting the underlying banking culture is essential if the sector is to see the change needed.
Encouraging a culture of openness and honesty
In the past, he went on to say, banking culture has been such that ‘management are so convinced of their rightness that they hurtle for the cliff without questioning the direction of travel’.
This creates what he refers to as ‘hubris risk, the risk of blinding over-confidence’, which has been brought about by historic ‘reverence towards, and little questioning of, the ability of banks and bankers to make money’.
Inviting challenges to existing approaches
Instead of starting from a point of confidence in the planned approach, firms should be open to questioning and challenging. This isn’t the first time we have heard regulators encourage this ethos.
In the FCA’s recent report on Assessing Suitability: Research and Due Diligence of Products and Services, the regulator makes clear the need for what’s termed ‘a culture of challenge’.
The report says that firms where advisers are encouraged to challenge assumed approaches or solutions are likely to be those that deliver the best results for clients. Conversely, ‘where there was no culture of challenge within the firm, the research and due diligence process showed weaknesses’.
Deep-rooted cultural change is needed
This – as Andrew Bailey said in his speech – demands cultural change for many banks and financial services firms. In some cases, the changes will be substantial. And, as he pointed out, creating a ‘good’ culture is difficult because culture is hard to define and even harder to regulate.
‘It is not the job of regulators to enforce culture and to change culture. If we have to step in, and occasionally we do, the overriding conclusion is that management has failed,’ he said.
Cultural change is therefore something the banks will need to lead and police themselves, rather than relying on regulatory intervention or overly-prescriptive guidelines. Once the regulator is involved, it’s already an admittance that internal efforts on culture have not been successful.
What does this mean for Compliance?
Andrew Bailey’s speech doesn’t represent a departure from recent regulatory strategy. Quite the opposite in fact – it reinforces messages we have seen increasingly from the FCA. Messages around embedded compliance; a move away from a tick-box culture; and a need for firms to regulate their own behaviour.
For Compliance teams, there are some important points to consider from this shift towards firms’ accountability and a ‘lighter touch’ regulator:
- Compliance teams need to work with the business to embed ‘cultural compliance’. Collaboration – whether with Marketing and Sales on financial promotions, Product Development on new solution design or Operations on processes and procedures – will be key.
- Although the regulator may not want to get closely involved in the detail of firms’ compliance, the burden of regulation continues to increase. You need to find ways of working efficiently that enable you to keep pace without going under.
- Your role is moving towards one of strategic adviser, rather than regulatory police officer. This can bring immense opportunities – but may take some getting used to. The Compliance role is evolving – and you need to work out how to capitalise on these changes.
- You will be central to shaping your firm’s culture in future. You are in a unique position to identify any problems with your existing culture. Perivan Solutions blog has tips on how you can do this effectively.
- Making Compliance processes easy to follow means people are more likely to follow them. You might want to explore automated tools, which can make your processes less labour-intensive, with reduced manual intervention minimising the chance of human error.
- Implementing a compliant culture demands that everyone becomes accountable for compliance. You may be called on to train and educate the business on what compliance means for your financial promotions, products and operations.
Changes to banking and financial services won’t happen overnight. But the need for change is evident – and the regulator is pushing for a new and improved culture across the financial services sector. If you want our tips on how you can meet the FCA’s requirements, you can download Perivan Solutions free guide; How to embed a compliance culture into your business. It’s free, and you can get a copy here.
Source: Perivan Solutions
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