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Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.


Claire Cummings

020 7585 1406


FCA discussion paper:

Transforming culture in financial services

The FCA has recently published a discussion paper on transforming culture in financial services intended to stimulate further debate on transforming culture in the financial services sector. The paper states that culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history, causing harm to both consumers and markets. To increase the public’s confidence, firms need to demonstrate they are working in the interests of consumers and the market. Given the FCA’s impact and the role the FCA needs to play in re-building trust in financial services, firms’ culture is a priority for the FCA.

The FCA defines “culture” as the habitual behaviours and mindsets that characterise an organisation. The FCA’s focus is on four main drivers of a firm’s behaviour: (i) a firm’s purpose, (ii) leadership, (iii) approach to rewarding and managing people, and (iv) governance arrangements. The FCA have set out minimum standards of behaviour, in the form of 5 Conduct Rules, which sit at the heart of the Senior Managers and Certification Regime (known as the Accountability Regime). The Accountability Regime currently applies to Banks but there are plans to extend it.

The 5 Conduct Rules are:
  • Rule 1: You must act with integrity.
  • Rule 2: You must act with due skill, care and diligence.
  • Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators.
  • Rule 4: You must pay due regard to the interests of customers and treat them fairly.
  • Rule 5: You must observe proper standards of market conduct.
The paper states that two fundamental concepts underpin the FCA’s thinking about culture and regulation. First, the regulation has to hold the individual as well as the firm to account. Second, leaders can manage culture even if they can’t measure it very well. The regime aims to hold firms’ leadership to account for their own behaviour and for taking reasonable steps to manage the behaviour of those in their areas of responsibility. It also aims to ensure that leaders have clearly articulated what they are accountable for and that key responsibilities neither slip through the cracks nor end up too diffused. It provides a robust framework for a culture of accountability, bringing much needed clarity to the accountability of all individuals and a focus on behaviour that goes beyond simply complying with the rules.

The paper contains 28 essays from leading academics, industry leaders, international regulators and change practitioners and discusses what a good culture might look like, the role of regulation and regulators, how firms can widen their view of incentives and how to change behaviour for the better.

The FCA identifies three key themes across the essays:
  1. There has been a shift from linear thinking about culture and conduct to a dynamic, systems perspective. The formal aspects (purpose, processes, structures, systems) should be aligned with the informal aspects (beliefs, norms and unspoken rules) and there should be a focus on every individual in the system.

  2. Organisations should foster psychological safety and learning as a means for employees to speak up, collaborate, and innovate.

  3. Regulation can only go so far in improving culture. Firms and other industry stakeholders have a vital role to play.

The discussion paper includes actionable insights for financial services leaders and practitioners to consider how they effect change in their organisations. These include using behavioural science to guide incentives and cultural change, applying strategic focus to the continuous process for adapting culture and fostering environments of trust to encourage openness and learning.

This document is for general guidance only. It does not contain definitive advice.


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Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

25 05 2019

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