The future head of the Financial Conduct Authority (FCA), Andrew Bailey, has stressed the importance of senior management personal responsibility in a firm’s culture, in his final speech as chief executive of the PRA.
For those questioning the direction a Bailey-led FCA will take, the future head gave some hints as to his intentions: "the culture of firms and the people that make them up – and of course therefore the culture of industries insofar as it can be generalised – is of the utmost importance to financial regulators. Culture matters a great deal. And this is true for both conduct and prudential regulators."
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"In my view, culture is a product of a wide range of contributory forces: the stance and effectiveness of management and governance, including that well used phrase "the tone from the top"; the structure of remuneration and the incentives it creates; the quality and effectiveness of risk management; and as important as tone from the top, the willingness of people throughout the organisation to enthusiastically adopt and adhere to that tone," he said.
As a regulator, he said it was possible to tackle firms on these elements, and from this build a picture of firm culture and its determinants. What the FCA can’t do, he said, is try and determine the culture of firms, or write a regulatory rule that settles culture.
A key part of this, Bailey emphasised, is responsibility of senior managers, adding: "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."
Gaining trust
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By GlobalDataBailey defended the level of changes made by financial services since the economic crisis, but said public perception had not changed to reflect this.
"Today, the public perception of banking, and some other areas of finance, remains too much towards the exploitative "Greed is good" end of the spectrum. Major changes have occurred since the crisis which have improved behaviour in firms, but public opinion broadly does not recognise these developments and tends to think that nothing has changed."
Culture is an important part of demonstrating that change, he added.
While consumer trust is important for businesses, Bailey added being trustworthy might have another, potentially equally important, benefit: "As supervisors, our judgements are inevitably conditioned on whether we can trust the people with whom we deal. Good culture is a product of trust and it matters a lot for both prudential and conduct regulators."
