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Nurturing Change

05 March 2019 by Jonathan Davidson

Nurturing change

A continuous focus on healthy culture is critical, as robust governance underpins good practice, in addition to delivering long-term economic and business success

The Financial Conduct Authority (FCA) has 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. As it looks ahead to rolling out the SM&CR to the wider financial services industry this year – including organisations whose main business offering is not financial services – we look at how the new regulation can benefit them and five key ways to help achieve culture change in 2019.

Firstly, it is 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.

An unhealthy culture can deliver returns in the short term; but it can also prove risky, expensive and unsustainable in the long term. The costs of an unhealthy culture start with redress costs and fines and can end with huge reputational damage and loss of trust.

Equally as concerning is the fact that poor culture can lead to loss of trust in firms and potentially even whole sectors. For markets to work and for businesses to be successful, it is critical that they are trustworthy.

Overcoming obstacles

One of the biggest challenges in establishing a healthy culture is that transforming culture requires time and consistency. Culture is the way an organisation runs its day-to-day activities and is ingrained in the behaviour of its employees. It becomes habit and this means it is not as simple as flipping a switch to create change; it needs to be re-learned, and this takes time. Realising a healthy, sustainable culture is about recognising and living a new way of being, not implementing a project; it’s a journey, and not a destination – but it is achievable.

“An unhealthy culture can deliver returns in the short term; but it can also prove risky, expensive and unsustainable in the long term”

However creating a healthy culture is not a simple process and it’s certainly not just about focusing on business processes. It’s about properly evaluating a firm’s purpose, leadership, its approach to its people and its governance arrangements to identify every shortcoming and every opportunity. It’s about getting buy-in from every level in the organisation. If every employee feels a sense of responsibility and investment in the workplace culture, positive change is easier, and the result will be stronger. We hope the introduction of the SM&CR will encourage individuals within businesses to re-evaluate whether they are personally meeting the standards set by the Conduct Rules, and what they need to change.

Although complying with the SM&CR is a starting point, regulation alone cannot transform an organisation’s culture. Business leaders need to understand the intricacies of their own organisations, the drivers of behaviour and where the challenges lie, then make the effort to spearhead a movement towards better culture. It is only by looking at the whole picture – and the detail within it – that organisations can effect real change.

Delivering change

Each organisation is unique in its purpose and the way it operates, so naturally each culture will be different and there is no ‘one size fits all’ solution. However, as a regulator, we pay a lot of attention to the results of the culture at work to see that harm is avoided. In particular, we look at how a firm uses four drivers of behaviour; a firm’s purpose, leadership, approach to rewarding and managing people, and governance arrangements. There are five ways below that demonstrate how organisations can implement this change.

1. The leadership challenge

Senior managers (covered by the SM&CR) are leaders and their role is extremely influential in shaping the way others behave. They need to take responsibility, not just for the decisions they make, but for leading others to reinforce the right behaviours. They can have a profound impact on the way that others act and, by extension, the culture in the workplace. Ensuring that leaders are accountable for their own actions and those in their areas of responsibility is one of the key components of the SM&CR.

2. Instilling trust
Strong leaders inspire trust by saying what they are going to do and doing it. It is the same for organisations. 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. A gap between
what an organisation says it is doing and what it actually does can create a lack of credibility and can ultimately diminish the trust of employees, customers and regulators.

Once your espoused purpose is in place, it’s important to make sure there isn’t a gap between this and your business model. The two should be interlinked – one should support the other. There is little point in setting out a clear purpose if the day to day operations of the organisation are not authentically embodying it. Finally, you should ensure the purpose – and the behaviours you consider integral to reaching it – are communicated to, understood and bought into by every one of
your employees.

3. Equip colleagues and encourage them
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, we have developed five conduct rules to improve standards of behaviour of all financial services employees, not just at the senior manager level.
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.

While the conduct rules provide a good framework for those within an organisation to follow, it is the role of leaders to ensure colleagues are not only capable of doing the right thing, but that they are also encouraged to do so. Leaders should ensure employees understand the benefits of contributing to a positive culture, and that they feel empowered to contribute to change.

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

4. Be well organised
Make sure it is clear who is responsible for making key decisions and managing key risks. Clearly allocating responsibilities within an organisation might seem like common sense, but the objective of the SM&CR is
to take this one step further and to make this common practice.
This encourages transparency and a feeling of individual accountability throughout the organisation, which helps keep everyone on track and in line with your desired purpose.

5. Recognise that it is about consistency
If organisations want to be successful in achieving their desired workplace culture, they must recognise that shifting it takes time.

More importantly, it takes absolute and relentless consistency on an ongoing basis across purpose, leadership, and approach to people and governance.


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 creates an opportune moment to do so. An increasing number of organisations are forming the view that a healthy culture is in their economic interest and it is a key consideration. Starting at the top, it is helpful to think about what a shift in culture would look like for the organisation’s leaders. For each shift that you want to make, what changes would you need to make to each and every one of the drivers of culture? 

Jonathan Davidson is executive director of supervision (retail and authorisations) at the Financial Conduct Authority 

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