Key points from FCA speech: ‘Culture is contagious’

The FCA has published a speech, ‘Culture is Contagious’ delivered by Emily Shepperd, FCA Chief Operating Officer, on the 4^th of February at the 10th Annual Culture and Conduct in Financial Services Summit.

The speech emphasised the significance to consumers, markets and economic growth of the culture of firms within the financial services sector. This article explores the key themes within the speech.

Culture- good or bad- is ‘contagious’

Employing the metaphor of a common cold, Shepperd noted that poor culture has the capacity to spread if poor behaviour is left unchecked or ignored, but that healthy cultures can also be contagious, and work to prevent toxicity taking hold if maintained:

“When respect, integrity and accountability are woven into the fabric of an organisation, they act like a social immune system – catching bad behaviour early and stopping it from spreading.”

The speech emphasised the vital role senior leaders have in building and maintaining a strong positive culture, acknowledging that, whilst it may be challenging, “it’s […] one of the most powerful tools [the financial services sector has] to drive success, gain a competitive advantage, and boost longer-term resilience”.

Healthy cultures support responsible risk-taking required for economic growth

Referencing the Government’s call on the financial services sector to drive economic growth and competition, the speech emphasised that establishing a ‘foundation of healthy firm cultures’ will be key to supporting the responsible risk-taking required for long-term growth.

As diverse perspectives prevent ‘group think’, Shepperd noted inclusive cultures are better positioned to make strong decisions and ensure any risks taken are thoughtful, calculated and more likely to drive ‘genuine, inclusive growth’ across the wider economy.

The importance of psychological safety was also emphasised, as “cultures that encourage open dialogue, constructive challenge and learning from failure, fuel innovation, agility and longer-term success.”

Firms must act to eliminate toxic behaviour and build healthy cultures, or face wider implications

Referring to an FCA survey which revealed that in 2023, 2347 allegations of non-financial misconduct were made across around 1000 wholesale financial firms, Shepperd noted that incidents are often the earliest indicators of a poor culture, and how firms respond to, and act upon, problematic behaviour is vital.

According to the FCA, often investigations into consumer protection or market conduct failures reveal the root cause to be failings in culture and governance. The message is clear: culture drives conduct, shapes decisions and actions at all levels and directly impacts outcomes for consumers, markets and the economy.

It is vital that people feel psychologically safe enough to speak up before toxic behaviour manifests and leads to wider issues, such as hidden mistakes or ignored risks, which pose a significant risk to consumers and markets.

Firms must take a strong stance on toxic behaviour and act to eliminate it; when issues are ignored or left unchallenged, it raises wider questions about a firm’s decision-making and risk management. Unhealthy cultures also risk driving talent away from the financial services sector, in turn impacting growth, innovation and inclusivity.

How the FCA will address concerns around culture

Making the point that unhealthy cultures drive conduct, and negatively impact consumers, markets and the wider economy, Shepperd emphasised that this is why culture remains a regulatory concern, rather than a purely ethical one.

The FCA is reportedly working with stakeholders to drive up culture and conduct standards, and plans to take the following actions:

• The FCA has been updating its rules and guidance on non-financial misconduct and expects to release detail on proposed next steps shortly.

• In relation to diversity and inclusion more broadly, the FCA and the Prudential Regulation Authority (PRA) are considering the next steps following their consultation, including how their work dovetails with planned activity from the Government (e.g. on employment rights, gender action plans and disability and ethnicity pay gaps).

• The FCA has been clear that rules and guidance are not enough in isolation; firms must also act where non-financial misconduct occurs.

• The FCA is working alongside HM Treasury and the PRA to review the Senior Managers and Certification Regime (SM&CR) and ensure it is “more efficient and effective”; it will publish a consultation paper in due course.

Next steps for firms

Shepperd invited firms and senior leaders to reflect on the culture of their own firm, emphasising that culture does not reflect upon or define individual firms, but collectively “shapes the future of [the UK’s] financial system”.

Ultimately, all firms should be consistently striving to embed healthy cultures throughout, not only to protect individual employees, consumers and businesses from harm, but to ensure a positive contribution to the integrity and trustworthiness of the sector, UK markets and to achieve sustainable growth.  

This speech emphasises that to focus on furthering profit at the expense of culture is counterproductive and futile; the two are inextricably linked and UK financial services will only be as strong and successful as the culture on which it is built.

Learn more

The Development Zone has a range of e-learning courses to equip brokers in understanding key industry themes and developments, all whilst aiding users in fulfilling annual CPD requirements!

Useful courses include:

• Senior Managers and Certification Regime SMCR – Introduction
• Ethics and the Financial Services Sector - The Public Interest
• Non-Financial Misconduct in the Financial Services Sector
• Organisational Culture
• Purposeful Cultures

All courses can be accessed via the course catalogue.

If you are new to the Development Zone, get in touch with the team at devzone@ukgigroup.com to discuss how the platform can aid your firm in fulfilling regulatory CPD requirements whilst enhancing the learning and development of your team. Or request a free 14-day trial at https://mydevelopment.zone/free-trial to see for yourself!