FCA speaks on SMR extension

Jonathan Davidson has spoken on culture and conduct in the context of FCA’s proposals to extend the SMR. Key points of his speech included:

  • that business models often create commercial incentives for behaviours that lead to poor consumer outcomes, and FCA tries to understand how business models evolve to anticipate risks so it can use the best tools to mitigate them
  • but that fines and requirements on firms to make redress are not enough to address the problems, which is why there is a need for personal accountability
  • critical elements of a good culture are the tone from the top, formal governance processes and structures and making sure that “people” related practices do not reward misconduct or drive employees to act against consumers’ best interests

He set out the five conduct rules in the accountability regime, which reflect what employees should be doing anyway. He stressed the importance of senior management being fit and proper as the leaders of the organisation’s culture.

He moved on to speak of moving beyond a “fear based” culture – stressing FCA’s aim to look at whether an individual took reasonable steps to prevent others breaching conduct rules when something goes wrong within that individual’s area of responsibility.

Finally, he noted that a culture which invites people to see themselves as “good” people, rather than on that punishes transgressions, works best and this is what firms should try to embed.