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Five ways to boost culture and governance change in 2019 

Jonathan Davidson

The FCA has now introduced the Senior Managers & Certification Regime (SM&CR) for banks and insurers, creating a new standard for personal conduct to help improve accountability and drive a healthy culture across the sector. HR directors will be instrumental in implementing the new regulation.  Contributor Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations, FCA.

As it looks ahead at rolling out the SM&CR to the wider financial services industry this year – including organisations whose main business offering is not financial services– Jonathan Davidson discusses how the new regulation can benefit them and suggests five key ways HR directors can help achieve culture and governance change in 2019.

Why is a healthy culture so important for all organisations?
It’s good for business when employees buy into a firm’s purpose, feel personal accountability and are inspired to speak up (and to listen). This kind of culture supports a healthy and inclusive workplace for employees, innovation and sustainability for shareholders, and thoughtful identification and mitigation of risk. 

Conversely, an unhealthy culture can deliver returns in the short term; but it can also prove risky and unsustainable in the longer term. An unhealthy culture is unattractive to the best talent. And an unhealthy culture can prove expensive in costs and reputational impact when it is a key root cause of major conduct failings.

It also impacts on public and industry perception of the organisation. For markets to work and for businesses to be successful, it is critical that they are seen as trustworthy. If a business can demonstrate it is working in the interests of consumers and the market, public and industry confidence will increase.

What are the main challenges to changing culture?
Culture change cannot happen overnight – Culture is often ingrained in the way an organisation runs its day to day activities and in the behaviour of employees. It becomes habit and this means it is not as simple as flipping a switch to create change. Realising a healthy, sustainable culture is a continuous journey, and not a destination – but it is achievable. 

Taking it beyond box ticking
Creating a healthy culture is not a simple process. It’s about properly evaluating a firm’s purpose, leadership, its approach to its people and its governance arrangements and ensuring that responsibility is clear throughout every level. We hope the introduction of the SM&CR will encourage individuals within businesses to re-evaluate whether they are meeting the standards needed to achieve the desired environment.

Compliance with rules alone won’t transform culture
Although complying with the SM&CR is a starting point, regulation alone cannot transform an organisation’s culture. HR departments need to work with business leaders to understand the intricacies of their own organisations’ cultures and identify where the challenges lie.

How can HR directors help boost culture and governance change?
Whilst it can be difficult to measure the culture of a firm, it can still be managed. Each organisation is unique in its purpose and the way it operates, so naturally each culture will be different. There is no ‘one size fits all’ solution. However, I have outlined five key ways that HR directors can boost culture and governance change for the year ahead:

Take on the leadership challenge
Senior managers are leaders, not just decision makers, and their role can be extremely influential in shaping the way others behave. HR directors should encourage senior managers to take responsibility not just for their actions and decision making, but also for their leadership, as this sets the tone for how the organisation conducts itself – hence why it is one of the key components of the SM&CR. 

If you want the trust of employees, customers and regulators, you must earn it with no ‘say-do gap’
Closing the ‘say-do gap’ starts with a clear and meaningful purpose – this is an organisation’s driving force; it is the definition of what constitutes its success.
Once an espoused purpose is in place, it’s important to make sure there is no gap between this and the business model. A gap between what an organisation says it is doing and what it actually does can create a lack of credibility. HR directors should support in ensuring the purpose – and the behaviours considered integral to reaching it – are communicated to and understood by every one of their employees.

Make sure that your colleagues are equipped to do the right things
Customers and regulators want to trust that you will do a good job as well as being well intentioned. As part of the SM&CR, the FCA has developed five conduct rules as a tool to improve standards of behaviour for employees. HR directors must ensure individuals are appropriately trained on the conduct rules. These conduct rules focus on competence as well as propriety, and are as follows:

  • You must act with integrity;
  • You must act with due care, skill and diligence;
  • You must be open and cooperative with the regulators;
  • You must pay due regard to the interests of customers and treat them fairly;
  • You must observe proper standards of market conduct.

It’s also important to create a psychologically safe environment where staff at all levels feel they can speak up. This can help reduce the potential for excessive risk taking or inappropriate behaviour which can cause harm to consumers and markets.

Be well organised
HR directors can play a key role in implementing the SM&CR. Firms will need to identify which employees are senior managers and which are certified staff. They’ll also need to work with senior managers to agree their responsibilities. Accountability within an organisation might already seem obvious, but the objective of the SM&CR is to take this one step further and to make clear statements of responsibility common practice.

Recognise that it’s all about consistency
If organisations want to be successful in achieving their desired workplace culture, they must recognise that shifting it takes time. Absolute and relentless consistency must be upheld on an ongoing basis across purpose, leadership, approach to people and management to truly achieve and maintain a healthy workplace culture. 

I believe that all businesses can benefit from stepping back and reflecting on their culture and how it can be improved in 2019. The new SM&CR regulation creates a perfect opportunity for HR directors to help drive this forward by re-evaluating responsibilities and strengthening the accountability of their firms.


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