The FCA’s focus on culture is unrelenting. It’s the regulator’s view that culture in financial services is the root cause of conduct failings that cause harm to consumers and markets. That’s why culture is at the heart of the recently embedded SMCR.

Improving your firm’s culture doesn’t just serve you well when it comes to the regulator. As we’ve discussed in other posts, there’s a significant link between culture and commercial success – one we’re keen to help you explore here at TCC.

The FCA recognises that each business’s culture is unique, but nothing forms a culture like the people within it. Not just what they do, but who they are and how they are managed.

As a business you can have a say in all these aspects: who you employ and how and what you reward. If you approach these in the right way, aligning these things to a healthy culture, you get results that help satisfy the regulator and support your commercial goals.

The ‘who’ – Your recruitment practices

Your recruitment practices are essential to developing a compliant culture. Recruiting high-calibre individuals with a strong moral identity is how good culture sinks or swims.

Commercially, recruitment is expensive and time consuming, so you want to get it right first time. Culturally, you want people who will invest in the positive ethos of your business and who care about doing the right thing.

Without carefully thought-out policies in place, pressure to fill vacancies can force hiring managers to make poor choices; people who don’t support the positive culture of your business. You should think about what can be done organisationally to remove the pressures on staff to fill roles hastily.

What’s more, if you want to promote a healthy culture, diversity and inclusion need to play a part in your recruitment practices, alongside how good a cultural fit the candidate is. The FCA has made it clear that promoting more diversity in financial services firms is also high on its agenda. In a speech in October 2019 Christopher Woolard explained why diversity and inclusion matters. He explained that good decision-making comes from challenge, that challenge is only possible when you have different points of view, and that a lack of diversity leads to blind spots. Greater diversity and inclusion challenges narrow outlooks and perceived norms, bringing about innovation and new approaches.

Woolard also pointed out that organisationally, strong diversity policies attract potential employees, and encourage people to stick around if they feel included in a firm’s culture. In the cyclical nature of culture, getting these practices right can both encourage good people to stay with your business, and contribute to the positive environment themselves.

The ‘how’ – Rewarding and recognising

Once you’ve got the right people in your business, your culture will thrive based on how you  encourage the right behaviours.

Reconsider whether financial incentives and remuneration are the best approach for rewarding certain achievements or if there are other ways to recognise successes.

Financial incentives can be a driver for poor behaviours, and therefore poor culture. Staff are naturally removed from the money of their customers and clients, and therefore can be more inclined to mis-sell or steal for financial reward, especially if they face financial challenges themselves.

Financial rewards for selling have gotten firms into trouble with the regulator in the past, and now many firms no longer use them, including many high-profile banks.

But balance is key. Staff shouldn’t be made to be worse-off because financial incentives are removed for certain achievements. Business must revisit their pay structure if colleagues are paid low basic wages with high commission based on selling. A more balanced approach encourages a more positive atmosphere and diffuses the likelihood of widespread non-compliance.

The scope for career development, job security, engagement and recognition are all valid non-financial incentives and rewards. All these things also play into a healthy culture.

The ‘what’ – Incentivising the right achievements and behaviours

Think about not just how you reward but what behaviours you encourage.

It’s important to celebrate all kinds of successes, not just target-meeting, which can disproportionately reward teams with sales and numerical targets. And when sales targets are the singular metric against which achievements are measured, it can encourage behaviours that prioritise meeting those targets above the right outcomes for the customer.

When it comes to incentives and rewards, take the focus away from commercial targets and prioritise values-based and customer outcomes-focused goals.

It doesn’t mean you can’t meet your financial targets. Long-term the best way to ensure commercial success is to invest in good customer outcomes, preserve loyalty, and avoid the financial and reputational cost of complaints.

Align your reward and recognition scheme to your values, and align your values to the FCA’s conduct rules. This gives everyone in your business the opportunity to own those values and understand how their everyday behaviour contributes to the overall conduct and culture of your business.

Bringing it together

Some elements of organisational culture will always grow organically, but when it comes to recruitment and performance management there are practical and specific things your business can do to guide the way.

We’re the experts in connecting culture, compliance and commercial success. With our conduct and culture risk assessment you can get a true picture of your culture, and how it aligns to SMCR and wider regulatory priorities.

Do you know how your rewards and recognition approach influences your culture? Can you measure the impact of your recruitment practices on culture? These are all things the regulator will be interested in.

We delve deep into your business to understand your cultural dynamics and how they interact, giving you recommendations to help you exceed the FCA’s expectations, breed a healthy culture, and see commercial benefit as a result.

Let us help you perfect your culture

We're experts in connecting conduct, culture and commercial outcomes. Talk to us about what we can do for you.

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