Cultural expectations issued by the Financial Conduct Authority (FCA) are clear: an evidential culture of compliance and conduct is representative of how seriously financial organisations value their consumers, employees, brand, and overall business operation.
But are all firms successfully assessing and developing their ‘people-based culture’ in practice and where do some of the potential pitfalls currently reside? How can firms ensure they have the objective information needed to identify, improve, and repair human-capital risk issues before they lead to detrimental consumer outcomes and market harm, as well as increased regulatory scrutiny?
Adrian Harvey, CEO of RegTech Artificial Intelligence (AI) provider – Elephants Don’t Forget – believes that there is a compelling case for firms to evaluate the benefits of adopting a continual assessment methodology.
Harvey outlined the case: “The FCA continues to reiterate the need for financial firms to distance themselves from a ‘tick-box’ approach to compliance and analyse Management Information (MI) that enables them to make better decisions to develop positive people-based cultural progression.
“The cultural agenda issued by the regulator is also centred around developing and safeguarding effective ways to make lasting changes in employee behaviours and mindsets too. Quite simply, it is extremely difficult for firms to make the cultural improvements required if their people-based monitoring provisions are not supported by regular assessments.”
The AI provider, who support the continual training and competency programs of financial organisations including Allianz, Aviva, and BNP Paribas, recently hosted a webinar in conjunction with Worksmart exploring key cultural measurement themes, surveying a cross-section of 280 financial professionals on several issues to assess their current cultural progress.
When asked what impact the regulatory cultural agendas have had on their firms, none of the participants could positively state they were entirely confident with their current approach to culture and governance.
Worryingly, 15% actively stated that their approach to the agendas has been ‘tick box’ rather than value add. 50% noted that they had enabled them to make ‘some’ positive improvements to their governance and culture, whilst 35% positively asserted that they had made considerable changes across all areas of their organisations as a direct result.
Participants were also asked what work had been undertaken in readiness for the purported regulatory culture audits. 15% stated that they were not even aware that cultural audits were on the radar.
Just 6% said they believed their culture to be fine, 54% asserted they have a culture project ongoing, whilst 17% openly stated that they are still yet to launch a culture initiative and are looking to assign time for it in 2021.
Tick box approach to compliance
Harvey commented on the findings: “Whilst we appreciate that our poll results are not indicative of the entire financial sector, they do offer some insight into how culture progression as a theme is still being explored, adopted and implemented by firms.
“It was concerning to see that some organisations are still actively demonstrating a tick-box approach to compliance. A lack of evidential change in a firm’s provisions is figuratively like waving a ‘red flag’ in the regulator’s face. Whilst they obviously appreciate that culture progression is complex and takes budget, time, effort, and commitment, you would certainly expect that they would want to see some changes, and how these now reflect their future operating expectations.
“I look at this way: if the FCA asked me what changes my firm has made from a pre-and post-SM&CR perspective to guarantee we are continually ensuring that our people are trained to give the correct advice and experience for our customers in ever-changing and complex markets, and my reply was simply: ‘we do the same thing as we have always done’, that to me just says ‘red flag’.
“This does not look like an organisation – from the top down – that is genuinely embracing culture behaviour; where all their people genuinely know what they are doing from an ongoing perspective. I would want to know how that firm is realistically identifying knowledge, process, and conduct faults – and modifying them as the regulator requires – on a continual basis, not just annually, via Management Information (MI) that is robust and available for them to access in real-time.”
Culture, strategy and purpose
When participants were asked which key tools and measurements they were already equipped with and utilising successfully, 59% of professionals said that their primary objective was to intentionally align culture, strategy, and purpose; noting their reliance on ‘frequent’ and ‘copious’ communication – combined with ensuring staff and stakeholder participation at every level across their respective organisations – were primary measures currently being deployed.
Whilst 41% stated that they could ‘quantitatively’ measure their cultural values, only 8% said that they were successfully applying ways to manage the development of the responses from their employees.
Harvey added:
“In our recent webinar, we extensively reviewed the Bank of England’s Organisational culture and bank risk working paper to glean some valuable insights into how firms could apply the use of obtrusive and unobtrusive indicators. Indeed, the paper concluded that ‘[e]xisting research [into bank culture and risk] has largely relied on employee surveys to measure organisational culture despite the significant shortcomings of this approach’.
With culture being dynamic, it was evident from the research that single point in time assessments – such as employee engagement surveys – cannot provide the continual assessment mechanism required to constantly assess cultural improvement from a people perspective.
Whilst it is certainly positive to hear that some firms have a cultural assessment program ongoing – and some are preparing to launch one this year – it is important that firms take on board information that examines the shortcomings of exclusively using these approaches.
The FCA is aware that cultural change is established from the top and, whilst articulation of values, accountability incentives and expectations are vital, a long-term change program that transitions itself successfully into BAU requires firms to ensure employee aptitude is central to their culture framework.
Training & Competence (T&C) is so intrinsically linked to the four pillars of improving culture; it’s not only associated with skills, knowledge, learning, recruitment, induction, and retention of talent, it fundamentally feeds into every single area of a firm.
From an organisational perspective: do all employees have a sound knowledge of all policies, processes, procedures, and governance expectations on an ongoing basis as your market changes – and can you evidence that for every member of your team?
From a relationship perspective: what does the level of training you provide (and the frequency of it) say about your leadership and your genuine commitment to positive cultural change?
From an employee performance perspective: are you predominantly reliant on single point in time assessments, employee engagement surveys, and complaints data to inform wider performance management conversations and strategic decisions?
Cultural change
With a primary objective of the FCA’s cultural agenda looking to secure lasting changes in employee behaviour and mindset, Harvey asserts that it is critical that firms provide staff with ongoing training, resources, support, and incentives to embed long-term change, and that senior leaders can access continual, granular MI to track their cultural progress and identify areas of people-based risk to better inform their future risk-mitigation decisions.
Harvey concluded: “If firms are primarily reliant on single point in time assessments, do these genuinely reflect ongoing culture? Whilst the information generated can be useful, culture is dynamic, so the notion that you can conduct a single point in time audit and define that your provisions are ‘fine’ is highly questionable.
“What is the definition of ‘fine’? Are you scoring yourself 90/100 at that point in time? Are you defining the collective competence of your organisation as ‘fine’ and not assessing it from an individual employee perspective?
“Ultimately, how valuable is the information to you when it comes to measuring, strengthening, and reporting on human capital and risk on an ongoing basis?
“Without a continual assessment methodology, it is arguable doubtful that firms will be able to really understand the drivers behind people-based behaviour and what requires most attention to repair them right now.”
