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#Governance, Risk and Compliance

Culture still a priority for FCA despite abandoned review

International Compliance Association

Banking culture , BSB , FCA

The year began with the FCA coming under heavy criticism for suspending its thematic review into banking culture. However, the regulator recently reaffirmed in its Business Plan for 2016/17 that firms’ culture and governance is one of the seven priority themes around which it will organize core activities for the coming year. Culture is certainly not off the agenda, although the regulator’s approach to it has appeared somewhat erratic in recent months.

One of the FCA’s stated reasons for terminating the culture review is that, during the initial phase of the review, it came to realisation that “the idiosyncratic nature of each individual institution meant that issuing generalised good and poor practice guidance was unlikely to be of sufficient value to justify continuing to focus our resources on the cross-firm work rather than by addressing this firm by firm”. Going forward, it will be interesting to see exactly how the FCA chooses to tackle issues of culture on a firm-by-firm basis, and the resources it deploys for this.

A further reason for terminating the review, the FCA said, was that it did not wish to duplicate similar work being undertaken by the Banking Standards Board (BSB). An immediate question, therefore, is the extent to which the FCA plans to endorse any findings and recommendations made by the BSB.

As a body with a voluntary membership and no statutory powers, some have been sceptical as to how much real significance the BSB’s current and future efforts to raise standards might have. Such criticisms have not subsided with the recent publication of the BSB’s first Annual Review which, it has been suggested, has been short on answers. The one and a half pages it devotes to “incentive and reward structures and practices” and the half page covering “challenge and speaking up” (the two areas in which the FCA was concerned that it was doubling up on work) are certainly a modest substitute for a fully-fledged thematic review. Hopefully future reports will be more substantial.

There is now a broad consensus that cultural failings were central to the financial crisis and that the long-term improvement of cultures is of fundamental importance if trust is to be restored in the financial sector and institutions. Cultural change at the institutional and sectoral level remains a considerable challenge. Clear, consistent and authoritative guidance on how to achieve and measure such change remains an important priority, as does an understanding of the extent to which progress is being made towards these goals.

 

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