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On 16 and 21 March, Andrew Bailey (Chief Executive of the Financial Conduct Authority), Mark Carney (the Governor of the Bank of England) and William C Dudley (President and Chief Executive of the Federal Reserve Bank of New York), gave speeches on improving culture in banking and financial services. The speeches together highlight the ways in which governance, remuneration and incentives drive the culture of a firm. They also provide a stocktake on regulatory initiatives intended to tackle these issues, and give insights into the areas that will attract particular scrutiny when supervisors assess a firm’s culture. The Governor also outlined a broad framework for addressing conflicts of interest.

Mr Bailey spoke at the Hong Kong Monetary Authority (HKMA) and the Governor and Mr Dudley on a panel of the Banking Standards Board (BSB). The speeches coincided with the publication of the HKMA’s circular on bank culture reform and the BSB’s Annual Review which, over time, is intended to evidence firms’ progress in ensuring that their culture works for customers.

These events signal that culture remains a top priority for supervisors in the UK and globally. But the message was a balanced one: while UK supervisors will continue to scrutinise firms’ culture, particularly as part of the Senior Managers Regime, the Governor made it clear that “we do not run for our regulated entities a disproportionate “one strike and you are out” regime for an honest mistake. […] An honest mistake that is freely admitted for which a firm takes prompt remedial action is not a firing offence. And here’s my point: we must not let recent events inadvertently tighten perceived standards for the industry because that could have Senior Managers running scared, drive compliance underground and undermine our collective objectives”. This provides a clear and important assurance and compass for firms and senior managers.

Why is culture important?

Mr Dudley defines culture as “what people observe and do, resulting in accepted and mostly unspoken norms. Mostly people look for what succeeds and what does not, and they try to align themselves with the former”. Echoing remarks made by Mr Bailey in October 2016, the Governor observed that over the past decade, banking has “suffered twin crises of solvency and legitimacy” and that repeated episodes of misconduct have called into question the “social licence” of finance. All three speeches demonstrate that supervisors consider developing and promulgating the right culture within firms as crucial to the general rehabilitation of banking and finance. While this is not a new message, it reaffirms strongly the supervisory priority attached to culture within the global conduct agenda. The speeches also set out useful practical examples of how firms can ensure that their culture is, as mentioned by Mr Bailey, “consistent with appropriate conduct outcomes”.

Key areas of focus in reforming culture


Running throughout each speech is a clear expectation, as the Governor notes, that firms “take responsibility – individually and collectively – for their own conduct”. Mr Bailey draws an important distinction between accountability and responsibility. While these sit closely together, he explains that accountability has more to do with culpability, while responsibility is about leadership. The Senior Managers Regime and its planned extension in 2018 to all FSMA authorised firms will drive the UK’s agenda in this regard. The Governor also observes that the adoption of the Senior Managers Regime is spreading beyond the UK with some international firms voluntarily adopting elements of the regime, and the Financial Stability Board(FSB) now explicitly reviewing the merits of such “responsibility mapping”.

More broadly, the Governor notes that the FSB is also considering possible approaches to addressing the “rolling of bad apples” so that when individuals move firms, their history will be known to employers who consider hiring them. The FSB also plans to publish shortly a stocktake on efforts underway by international bodies, national authorities, industry associations and firms to strengthen governance frameworks.

Mr Dudley provides clear examples of how responsibility works in practice. First, he observes that “cultures do not change simply by exhortation”: firms cannot merely tell employees to “speak up” and expect this to be the answer. Rather, “the best way to keep problems small is to encourage a culture that spots issues and raises concerns early”. To that end, he suggests that senior executives must be seen both to expect and respect challenges, and in turn must challenge ideas themselves. Still more importantly, “mid-level managers have to do the same”.


Both the Governor and Mr Bailey highlight the importance of incentive structures in driving culture. The Governor makes clear that the UK must move from excessive reliance on punitive ex post fines (i.e. culpability) to greater emphasis on ex ante incentives for individuals, with “compensation rules that align better risk and reward”. Mr Bailey suggests that incentives drive the behaviour of staff, along with other practices such as recruitment and performance management, and that this “is where tone from the top gets turned into real practice”. Mr Bailey notes that the FCA will form judgements firm by firm on whether these areas are driving positive behaviours and creating a culture that works in the long-term interests of the firm’s customers and market integrity as well as the firm itself. On driving good behaviour through incentives, Mr Dudley observes that “where raising one’s hand has saved the firm’s money and reputation by avoiding or keeping a problem small, that action should be rewarded”.

Conflicts of interest

The Governor explains the Bank’s response to the circumstances surrounding Deputy Governor Charlotte Hogg’s recent resignation on a conflict disclosure issue and maps this to “analogous situations in the private sector”. He explicitly states that in such situations the Bank would expect to see, as a baseline:

  1. evidence that the firm is taking the matter seriously;
  2. proportionate consequences for the individual, including some form of disciplinary warning and possibly some impact on remuneration; and
  3. a wider review of lessons learned if there was any evidence that there was a systemic problem.

A clear message here is the importance for firms of ensuring that their processes and controls would respond in these ways and deliver these outcomes should a similar conflict situation arise.


The speeches acknowledge that culture can be a difficult, amorphous and subjective topic to grapple with – as Mr Bailey notes, “it’s everywhere and nowhere”. The key theme of each of these speeches is encapsulated in Mr Bailey’s observation that the “answer is not to try to tackle the culture, but to act on the many things that determine it, of which governance and remuneration are important”. The three speeches provide important insights into the areas on which central bankers and supervisors will focus in their practical evaluation of firms’ cultures. We recommend that firms pay close attention to the key messages in these speeches and review their own processes and practical approaches against the good practice examples highlighted.

Andrew Bulley

Andrew Bulley – Partner, Centre for Regulatory Strategy, Deloitte

Andrew Bulley joined Deloitte in October 2016 from the Bank of England, where he was, most recently, the Director of Life Insurance Supervision. Between 2014 and 2016 he was a UK voting member of the Board of Supervisors of the European Insurance and Occupational Pensions Authority (“EIOPA”). In a career with the Bank of England and Financial Services Authority stretching over 27 years, Andrew has held senior roles in the supervision of life and general insurers, the London wholesale insurance underwriting and broking markets, retail and investment banks, asset managers, and IFAs.


David Strachan – EMEA Lead, Centre for Regulatory Strategy, Deloitte

David focuses on the impact of regulatory changes - both individual and in aggregate - on the strategies and business/operating models of financial services firms. David joined Deloitte after 12 years at the FSA, where in his last role, Director of Financial Stability, he worked on the division of the FSA into the PRA and the FCA.

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Sherine El-Sayed

Sherine El-Sayed – Assistant Manager, Centre for Regulatory Strategy, Deloitte

Sherine is an Assistant Manager in Deloitte’s EMEA Centre for Regulatory Strategy, where she focuses on conduct regulation in financial services. Before joining Deloitte, she worked at the Financial Markets Law Committee where she examined issues of legal uncertainty affecting wholesale financial markets.

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  • wow

    Posted by: stella on 29/06/2017

  • culture in every organization determines it success or failure

    Posted by: stella on 29/06/2017

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