The Financial Conduct Authority (FCA) Business Plan 2019/20 has reiterated culture and governance as a continuing cross-sector priority for the regulator. Drawing on the findings of a new survey, BrightPool's Jayne Cullen looks at the attitudes of City leaders towards cultural supervision and their preparedness for it.  

Where do you stand on the issue of regulatory interest in workplace culture?

This is an important question to ask given that the FCA is upping its focus on organisational culture within financial services, and extending the Senior Manager and Certification Regime (SM&CR) to the whole sector.

If you think the FCA's increased cultural supervision is an opportunity to deliver better business outcomes, then you?re in agreement with 64 per cent of the leaders surveyed. However, if you think cultural supervision is another hoop for firms to jump through, then you feel the same way as 48 per cent of the same leaders.

We have a conflicted picture. There is a general sense that the regulator's interest is a good thing for firms and the industry, but almost half of leaders would rather their firms didn't have to act in response to FCA expectations.

Unfortunately for those leaders, there's no getting away from their responsibilities. As the FCA has said: ?We expect firms to foster cultures which support the spirit of regulation in preventing harm to consumers and markets.? The FCA will be asking firms about culture during their regular ongoing supervisory activities and requesting evidence of healthy cultural signs.

Are firms prepared for this? Not according to the survey findings. Only 25 per cent felt their firms are fully prepared. Clearly an issue for firms is finding ways to show the regulator they are fostering cultures that don't lead to misconduct and/or decision making resulting in consumer harm.

The FCA has said it won't be directly measuring culture itself but will instead be looking at indicators of a healthy culture. The good news for firms is that the FCA has highlighted diversity and inclusion as an indicator it will be considering.

In December 2018 Christopher Woolard, the FCA's Director of Strategy and Competition announced: ?It should be clear by now that the FCA's interest in diversity is not merely a matter of social justice, but a core part of how we assess culture in a firm.?

The FCA believes that firms with diverse, inclusive workforces have fewer regulatory problems and reduced risk of misconduct. Therefore, firms which act to promote diversity and inclusion will be able to provide measurable evidence of a healthy culture.

 The FCA is particularly interested in cognitive diversity and inclusivity - and stresses the importance of building teams from different backgrounds who bring different perspectives to decision making. That is the kind of diversity that firms should be looking for, not quota-filling or box-ticking.

Going beyond mitigating risk, the 48 per cent of leaders who see meeting FCA expectations as jumping through hoops should look at this issue a different way. Businesses with diverse, inclusive cultures have been shown to financially outperform those without. Leaders should see taking steps to boost diversity as a win-win decision. It mitigates risk and provides evidence of a healthy culture you can share with the regulator. At the same time, it is a commercial imperative that delivers better performance.

Boosting diversity isn't straightforward, of course. In the survey, 45 per cent of leaders cited recruitment as the biggest barrier they face in increasing diversity, and 64 per cent had concerns about their firm having a reputation for not being diverse and inclusive - both even more reason for leaders to act.

If conduct, culture or FCA supervision are relevant to your remit, then the report will be essential reading. Pre-register for your copy here.