What’s next for the FCA’s culture agenda?

04 April 2018

The Financial Conduct Authority’s (FCA) recent discussion paper on culture is the regulator’s first tangible output on the topic for some time. With the Senior Managers & Certification Regime (SM&CR) due to be extended to all firms next year, now feels like the right time for the FCA to push on with its culture agenda.

Initially, the FCA focused on the importance of the ‘tone from the top’ and individual accountability. As the SM&CR has bedded into the banking sector, we’ve seen banks make notable progress in their approach to culture. This is backed up by the latest Banking Standards Board (BSB) annual review, which found that in 2017, on average 69% of employees saw no conflict between their organisation’s values and the way it does business, a 6% increase from 2016. The BSB emphasised that it’s what senior leaders do, not just what they say, that makes a real difference.

But changing culture takes time, and firms’ work to drive the right culture will not have an ‘end date’ – they need to continually drive this as the market and their business evolves over time. So there’s clearly more to do for banks, and for other firms which are yet to be brought into the SM&CR, which will understandably likely be further behind in their culture journey.

In its discussion paper, the FCA states there are numerous drivers of culture, one of which is leadership. Part of the SM&CR requires chief executives and chairs to set the cultural direction of their firm, and to understand what drives the culture in their business. When the regulation is extended next year, all leaders need to be prepared to be able to explain this. And, while the FCA maintains that senior leaders play a key role in influencing culture, the regulator also recognises that everyone influences the culture of a firm, from middle managers to junior employees. Having established the right tone from the top, firms now need to understand how to turn messages into improved behaviours at all levels of the organisation.

Our work with organisations has shown that middle managers can be really powerful in driving cultural change, as they’re in a position to challenge senior leaders and act as a more immediate role model for junior staff. The challenge lies in effectively engaging with this middle management population, which has proved difficult for many firms. This is partly because, compared to other levels of staff, middle managers are more likely to have been with the organisation for longer, and so may be sceptical of change programmes if they have seen other programmes fail in the past. Firms need to think carefully about how they equip middle management with the tools they need to drive cultural change.

This is just one area where the FCA’s discussion paper should prompt firms to consider how to develop their culture strategy. The paper contains much more food for thought and should leave firms in little doubt that culture remains high on the FCA’s agenda for this year and beyond.

Sarah Isted  | Partner
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Tessa Norman | Manager
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