New regulatory tools for Conduct assessment in 2021

Conduct risk reporting has been with us for a while now. However, its shape is changing profoundly this year as conduct regulators roll out a new set of assessment tools (Culture Audit) in mid-2021. In this article I offer some insights into the thinking behind these reporting tools based on long-term dialogues with the regulators who are developing them, engagement with our UK Finance Academy cohorts and focus group/s, and my work among the behavioural scientists whose research informs the regulators? designs.

The pandemic has of course had a major impact. For many in the financial sector, remote working has raised ?new normal? challenges around team cohesion, surveillance and security, psychological safety and mental health. It would be a surprise if conduct regulators - whose first interest is how people behave - didn't take an interest in any of that.

On the customer-facing side, Covid-19 has created more than one thousand new vulnerable customers every single day of the past year as each day's infection figures recalibrate our measure of what counts as the 'vulnerable population?.

In the longer term, regulators are resetting their own view of ?acceptable and expected? behaviour within firms to include wider learnings from our industry's experience of the pandemic. Firms are already being asked to reappraise their social licence (that is, the often tacit ?benefit of the doubt? that stakeholders allow to brands that lets a firm to continue to trade); expect to hear much more of this.

The application of Conduct rules is evolving, too. We are already seeing regulators give fresh emphasis to non-financial (as opposed to financial) misconduct; and urging firms to evidence ?exemplary conduct?.

It's not all about the Covid-19 response though. Several other factors are driving these changes of stance by conduct enforcers.

There's a widespread sense among the public, staff, and customers (as well as regulators) that we should all reconsider how 'socially useful? our work is; what value we give to others, beyond simply generating profits for ourselves. We see this in recent letters to CEOs demanding they better communicate a ?purpose? that is higher than profit.

This shift in focus of the ?Conduct project? can be found not only in the UK but around the world. Besides the Financial Conduct Authority (FCA), we?re seeing the Dutch DNB, Australia's APRA, America's NYFed, and Singapore's MAS all cooperating to test and introduce new audit techniques they call Culture Assessment. All five of these regulators talk to each other regularly about how best to make change happen in firms, from boardrooms to trading floors to call centres.

Later this year, these regulators? case officers will be randomly visiting various parts of your firm, in person, to see what staff on your front line are doing to keep culture moving ahead. At the UK Finance Conduct and Culture Academy, we have established ?form? on correctly predicting the practical impacts of regulation on your routine work - and how to keep ahead of these by making the right preparations.

In the next part of this blog series, we?ll look at how the new orthodoxy of Culture Audits is going to work in practice. You can view part two here

Part three of the series, Conduct, Culture and Covid-19: Engaging with a disrupted landscape, can be found here.

Join us on our Conduct and Culture Academy - learn more here.