In the last decade the importance of culture within regulated organisations has come to the fore. Previously, most regulators focused mainly on policy, procedure, controls and compliance. In the aftermath of the financial crisis, however, this changed.

In 2014 the G20 Financial Stability Board said:
“Weaknesses in risk culture are often considered a root cause of the global financial crisis, headline risk and compliance events. A financial institution’s risk culture plays an important role in influencing the actions and decisions taken by individuals.”

Culture and Governance was identified as one of its top priorities by the FCA in both 2016 and 2017 and is one of the most common factors raised in enforcement notices and Section 166 notices. In 2013, we carried out analysis of all the enforcement notices published by the FSA during 2010-2013 and culture and leadership were common factors. You can read more about this in our research report Fixing Cultures in the Financial Sector.

While many firms have been carrying out assessments of their culture by reviewing the messages sent out via activities such as training, communications performance objectives and remuneration we believe it is also important to look at what your people (at all levels) believe you value. We do this by asking them in targeted opinion surveys using our bespoke Conduct Culture Benchmarking tool, the first to do this when it was launched in 2014.

This measures how far your organisation values five of the most important factors in treating customers well:

If you have a culture which values these characteristics, it is very likely you have a strong Conduct Culture. If you score poorly in one or more, your culture may not be driving great outcomes for customers.

Clearly one of the most important influences on organisational culture is your leadership and senior management team. They determine the priorities of the organisation, they communicate in the most high-profile way, and, generally, what they do is reflected in what the organisation’s culture.

The FCA and other regulators are increasingly recognising this. The new Senior Manager and Certification Regime (SMCR) places accountability for culture and conduct on senior managers. This speech by The FCA Director of Supervision makes the link explicit.

Enterprise Learning frequently runs education and leadership programmes for senior managers, helping them understand how to influence their culture and lead change in regulated organisations. Here is one such case study.

We are currently carrying out research into the characteristics and skills of the best leaders of regulated organisations and will publish our findings in the new year.

The other main driver of an effective culture is how you train, coach and develop your people. Organisations that invest in training their front-line staff and their management populations can continuously reinforce the culture they want to build. Organisations which cut training investment or spend less time on continuous development often have unclear cultures, fragmented feedback in staff opinion surveys and deliver poor service to customers.

Regulators know this and have specific Training & Competence requirements covering all levels of staff. Our recent blog on effective training shows what we see as the seven secrets to effective regulated training.

While the impact of culture on business conduct and how customers are treated is clear, it is also clear that the most important factor influencing culture is our conduct in our organisations (what we do and what we say). John Shook, the first American senior manager hired by Toyota in Japan noticed that in Toyota, managers spent less time telling staff how to think or what they should value, and more time on helping them understand what to do and how to behave. And, of course, mirroring, rewarding and demonstrating these themselves.

If you would like to know more about our services, research or tools for helping clients change their Culture please contact us.