Firms need to consider how their own culture can help to “drive better outcomes”, according to Emily Shepperd, chief operating officer at the Financial Conduct Authority.
In a recent speech, Shepperd stated that flexible proposals on diversity and inclusion will help firms to drive changes that are beneficial.
However, she said it’s important that the purpose of this is understood and that the right policies and procedures are in place to ensure an inclusive culture with the right incentives.
Healthy culture
On the question of how to build a healthy culture, Shepperd said one place to start is diversity and inclusion.
She said that the FCA’s recent proposals aim to boost D&I in the financial services sector and “unlock talent”.
The aim of this is to deliver better internal governance, decision making and risk management.
She added that, in 2022, the FCA undertook multi-firm work approaches to D&I and, among those they spoke too, many firms’ strategies were “generic” and did not take a “holistic” view.
As a result, they lacked both a “clear articulation of purpose and action oriented to achieving their goals”.
She added the reality is that if the purpose is not clearly understood, articulated or backed up with actions then ‘tone from the top’ is simply “lip service”.
The FCA has “long argued” that D&I makes good business sense, because a diverse and inclusive environment is one where colleagues can challenge.
Shepperd said: “A healthy culture on its own may not equal profit, but a poor culture can certainly lead to calamity.”
As a result, Shepperd stated that the FCA is proposing guidance to “make clear” that misconduct such as bullying and sexual harassment pose a risk to healthy firm cultures.
This will help “ensure” firms can take decisive and appropriate action when such behaviours occur.
Centering customers
Shepperd admitted to being “slightly obsessed with data and metrics” and that the authority apply similar principles to the firms it regulates.
As a result, it has applied the SMCR and operational resilience to its organisation.
She explained these remain important because they come down to having the right processes in place.
“Fundamentally, when you get those right, you get the most from your employees,” she explained.
For the FCA, this has meant putting the operational building blocks in place and taking industry best practice to the FCA with a focus on operational efficiency and effectiveness.
However, Shepperd said “we’re by no means near the end of the journey of improving our processes”.
She stated that “we need to constantly evaluate and adapt to developments in technology” to deliver innovative and efficient regulation.
As part of this, she spoke on how the authority could accommodate artificial intelligence.
“We are making sure to build strong controls or governance, including ensuring appropriate levels of human or technical validation appropriate to the very different models, and associated novel threats, emerging.”
