An FSB working group has published a stocktake of efforts by financial institutions (from all sectors), industry associations and national authorities to mitigate misconduct risk through improved governance.
Three sections of the report are worth highlighting.
First, a summary of the responses from 53 firms (from across all sectors) on what they are doing on governance and misconduct. There is nothing new or surprising here but useful to have the usual suspects confirmed:
Second, a review of the academic literature on culture. Again nothing new here, but the various strands of the literature do provide a good organising framework that firms might find useful for assessing their own policies and procedures, including values and beliefs, social norms, leadership, decision-making, speaking-up and incentive structures.
Third, the working group proposed three areas which it wants to pursue further, all of which resonate in the UK in particular:
The report is one of many which highlights the importance of a consideration of culture and in particular how it relates to conduct risk in financial institutions. The Central Bank’s large scale thematic reviews such as the Payment Protection Insurance (“PPI”) investigation and the Tracker Mortgage investigation have provided renewed focus on measures to improve consumer outcomes – particularly in regard to providing confidence in the wider financial system and ensuring consumers are treated fairly. But market participants are now realising that regulation is just one small part of the equation – developing a culture of ethical conduct is about having the right people, systems and processes in place.
Furthermore the introduction of the Central Bank’s Consumer Protection Risk Assessment (“CPRA”) framework reiterates how important the themes of culture and conduct are. The CPRA is a new supervisory model to enable supervisors to assess how firms’ consumer protection risk management frameworks are designed and governed and, importantly, how effective they are in practice at delivering fair consumer outcomes.
KPMG has produced a useful series of articles examining culture as it can be a difficult topic for firms to conceptualise. The articles look at culture from the overall perspective of the firm, from a conduct perspective and also from the perspective of the regulator.