Global Regulation, Local Solutions Emerging Themes 2020 - Page 19



SUPERVISION
EMERGING THEMES 2020
WHAT THIS MEANS FOR FIRMS
CULTURAL TRANSFORMATION IN
THE SPOTLIGHT
Poor culture was identified by the Parliamentary
Commission on Banking Standards’ 2013
report as a key root cause of conduct failings
that have occurred in the last decade within
financial services. As a result, the regulators
have made it a priority to ensure that firms
understand the importance of fostering the
right culture within their businesses. At the same
time as recognising the importance of culture,
the regulators have been quick to admit that
changing culture is no simple matter.
The FCA’s focus on culture continues to evolve.
One recent development is the broadening
approach the FCA is taking to conduct
regulation, particularly its focus on non-financial
misconduct. This has been thrown into sharp
relief by the #MeToo movement, which has put
workplace sexual misconduct at the top of the
agenda for many organisations, including in
financial services.
The July 2018 Women and Equalities
Committee’s report on “Sexual harassment
in the Workplace” was highly critical of the
failure of government, regulators and
employers to tackle workplace sexual
harassment. The Committee emphasised
the need for regulators to take a more active
role in tackling harassment.
The FCA was quick to respond. In her letter
to the Committee in September 2018, Megan
Butler (Executive Director of Supervision,
FCA), made clear that the FCA views sexual
harassment as misconduct falling within the
scope of its regulatory framework. She also
said that it was relevant to individual fitness
and propriety. Christopher Woolard (Executive
Director of Strategy and Competition, FCA)
elaborated further in December 2018 when
he said that non-financial misconduct was
misconduct “plain and simple” and that the
way firms handle non-financial misconduct is
as relevant to the FCA’s assessment of the firm
as their handling of financial misconduct.
PSYCHOLOGICAL SAFETY
The FCA’s 2019/20 Business Plan highlights
further developments in its approach. The
FCA emphasised its concern that not only did
#MeToo and other non-financial misconduct
events continue to happen, but also expressed
concern with the inadequacy or preparedness
of managerial responses. In the FCA’s view,
these are clear symptoms of an unhealthy
workplace culture – one which tolerates nonfinancial misconduct and doesn’t encourage
people to speak up, or to challenge decisions.
The emphasis on fostering a “speak up, listen
up” culture – an environment of psychological
safety where people feel able to express
opinions in the workplace – marks a material
evolution in FCA expectations. Whilst well
implemented regulatory whistleblowing
channels have been effective in enabling staff
to raise reportable concerns without fear of
unwanted identification or reprisal, they are
not sufficient to embed a culture of openness.
A healthy speak up culture reduces the need for
people to feel they have to escalate issues via
the whistleblowing channel or, for HR-focused
issues, by raising a formal workplace grievance.
Although much of the focus to date
has been on sexual misconduct
and harassment, complaints of
racism, homophobia, bullying or
other discriminatory behaviours
will be of equal interest to the
regulators
An environment of
psychological safety
where people feel
able to express
opinions in the
workplace
Firms are starting to recognise the importance placed
by the regulators on non-financial misconduct. This is
reflected in the noticeable increase in reports to the
FCA concerning issues like discrimination and sexual
harassment. Although much of the focus to date has
been on sexual misconduct and harassment, complaints
of racism, homophobia, bullying or other discriminatory
behaviours will be of equal interest to the regulators.
Firms should review arrangements in place to ensure
employees feel confident to raise issues as and when
they arise, to embed this “speak up, listen up” culture.
As the FCA points out, a key benefit of such an open
culture is that firms may often be able to identify and
act on issues at an earlier stage, before they have the
potential to become very damaging.
When issues are raised, firms need to ensure they are
appropriately investigated and, where necessary, action
is taken. A well-founded complaint of non-financial
misconduct committed by a senior manager or member
of certified staff will require a review of whether that
individual remains fit and proper to carry out their role.
Where a non-financial misconduct issue of sufficient
materiality is raised, firms will need to assess whether they
need to report the matter to the FCA/PRA. No firm can
safely assume that the regulators would not want to know
about non-financial misconduct in the current climate.
CATHERINE MCGRATH
Senior Associate,
London
18/
ADAM TURNER
Associate Director,
London
/19

Paperturn



Powered by


Full screen Click to read
Paperturn flip book system
Search
Overview
Download as PDF
Print
Shopping cart
Full screen
Exit full screen