Following hot on the heels of its recent discussion paper on diversity and inclusion, the FCA's Executive Director of Consumers and Competition Sheldon Mills, has given a speech that gives interesting colour on the FCA's developing approach to culture.
Mr Mills’ starting point is that firms with healthy cultures are less prone to misconduct. Firms that are diverse deliver better outcomes for shareholders, customers and markets. Having a clearly articulated culture and purpose is advantageous when a crisis hits, giving a readily accessible standard against which to measure decisions taken under pressure and at speed.
What does this mean for firms' supervisory relationships with the FCA? Mr Mills explains that:
- Culture is difficult to measure and assess and the FCA is still developing its role here.
- The FCA will view a firm’s culture through four lenses: purpose, people, leadership and governance.
- The FCA has a range of supervisory and enforcement tools that it will use to address any issues it identifies.
- Firms should assess market developments and changes through the prism of culture, challenging themselves to consider whether their impact is likely to be positive, negative or neutral. These include changes precipitated by the pandemic. How can people be encouraged to speak up and feel included in hybrid workplaces? What are the impacts of remote working on supervision and control? Firms have been grappling with issues such as these since the start of the first lockdown.
- The FCA will now be looking for 'assurance' that senior managers are proactively guarding their culture in the face of both external and internal threats.
On diversity and inclusion, Mr Mills repeated many of the themes in the joint FCA, PRA and Bank of England discussion paper published in July. He confirmed that next year will see a consultation on specific rules and guidance.
Diversity and inclusion questions are set to become an increasing feature of the FCA's engagement with firms. The challenge for firms will be not just to identify where issues are are impacting negatively on diversity and inclusion, but also to measure and manage these impacts and demonstrate these efforts to the FCA's satisfaction.
Gathering diversity data, particularly in smaller organisations, may conflict with other employer obligations such as those set out in the GDPR. There are competing objectives here that will need to be balanced carefully.
Linklaters has a range of offerings to support you in developing diversity and inclusion within your organisation as part of a broader culture agenda and to help you to develop your diversity and inclusion strategy and risk management. These include our:
- Diversity in Financial Services webpage;
- Diversity Faculty, which provides firms with a full suite of services to help you evolve your diversity and inclusion strategy and create a workplace culture that reflects your organisation’s core values; and
- Culture governance and accountability campaign, with specialist insight into promoting a positive healthy culture and how firms can ensure that their governance structures and systems and controls support this.