‘Organisational culture’ is a concept that has been debated by sociologists for decades. In short, it can be described as ‘the way that things are done’ within an organisation. It includes the attitudes, values and beliefs that employees share, together with corporate expectations and the way decisions are made within an organisation. An organisation’s culture helps determine the behaviours that are tolerated, and the behaviours that are condemned or disapproved of.
Culture is socially constructed and transmitted – it is something that we acquire from the society in which we grow up and the people and institutions with which we associate. The same is true for the workplace. We spend a considerable amount of our lives in work and with our colleagues. As such, work, and the people we work with, influence the way we think and conduct ourselves, whether in a positive or negative way.
Organisational culture is often deeply-rooted and is created by a combination of internal and external social interactions. This includes interactions between management and employees and how external factors such as the market, laws, regulation and wider cultural trends are dealt with. The history and purpose of the organisation also impact on this culture and the way it is transmitted to others. Organisational culture is therefore moulded by the attitudes, beliefs and behaviours of senior managers and reinforced through corporate rules, procedures and various symbols and structures within the workplace. It is something that can be difficult to change.
The FCA believes there is a link between organisational culture and regulatory compliance. A firm with good professional standards and a genuine belief in treating customers fairly will be more likely to have a more positive attitude towards compliance and good governance. To such firms, compliance is more than just a tick-box exercise.
Culture is at the heart of the Senior Managers and Certification Regime (SM&CR). Whilst the regulator cannot be too prescriptive about organisational culture, the minimum standards it expects are embodied in the five individual Conduct Rules, which apply to almost all financial services staff. These are:
- You must act with integrity
- You must act with due skill, care and diligence
- You must be open and cooperative with the FCA, the PRA and other regulators
- You must pay due regard to the interests of customers and treat them fairly
- You must observe proper standards of market conduct
These rules impose greater levels of personal accountability, meaning individuals may be held responsible by the regulator for conduct breaches.
The drive for a healthy culture can also be seen in the Senior Managers Regime, which provides greater clarity over the roles and responsibilities of Senior Managers. Senior Managers will have clear areas of accountability and it will be their responsibility to take reasonable steps to avoid conduct breaches in these areas. As such, Senior Managers have the important leadership role of fostering positive, healthy cultures within firms.
Positive culture is also reinforced through the Certification Regime. Staff who fall within this regime are not Senior Managers but still have the potential to have a significant impact on a firm or its customers. Whilst these staff will not be approved by the FCA, they will have to be assessed by firms, at least annually, to be certified as being ‘fit and proper’ for their roles. These assessments must consider the individual’s honesty and integrity; competence and capability; and financial soundness. Issues of financial and non-financial misconduct may be considered in a fitness and propriety assessment.
SM&CR therefore aims to improve conduct and create and maintain a healthy culture in the financial services sector. As such, positive values and behaviours should be embedded throughout organisations from board level to the newest inductee. To get ready for SM&CR, firms should consider:
- Reviewing corporate governance processes
- Ensuring that organisational structures and reporting lines are ‘fit for purpose’
- Reviewing recruitment policies and procedures
- Reflecting on their leadership and management styles and their organisational culture
- Promoting diversity and inclusion in the workplace
Firms should work towards ensuring a transparent workplace culture, in which employees feel safe to speak up, knowing that their concerns will be listened to.
This might seem like a lot to consider, but it is also an opportunity for firms to evaluate, document and embed a positive culture across their organisation which will benefit them in the long-term.
To find out how RWA can help your firm get ready for the implementation of SM&CR, please check out our website.