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Speech by Emily Shepperd, Chief Operating Officer and Executive Director of Authorisations, delivered online at the Westminster Business Forum.
Speaker: Emily Shepperd, Chief Operating Officer and Executive Director of Authorisations
Event:Westminster Business Forum (Online)
Delivered: 26June 2023
Note: This is the published version of the speech which may differ to that delivered.
Highlights
Regulations such as our Consumer Duty and our proposals for ESG are designed to meet the evolving demands of our markets and consumers.
Firms should also ask tough questions when assessing fitness and propriety of staff in financial services.
Culture is crucial for confidence and can dictate bottom lines.
Introduction
'Every generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.'
That was the analysis of George Orwell almost a century ago. And if you peer under the bonnet of any organisation, whether it be a nuclear family or a giant corporation, it is what many members believe is true.
It’s evident in our public discourse, be that on climate change or cultural topics. This trickles down to microcosms, such as the workplace or indeed around the dinner table.
The culture across some of today’s organisations, for example, can be found lacking when applied through the prism of a Millennial - and even more so - when scrutinised under a Gen Z lens.
If you are living with teenagers, I know you’ll understand…
The way to solve these tensions, is usually through finding a common path. But to do so, it’s important to listen, especially as a leader.
It helps create an environment where people feel comfortable to speak up, share their experiences and provide meaningful challenge. It fosters diversity of thought, and while we may sound like a broken record on this, we believe that helps to drive better outcomes for firms and their customers.
Thankfully we have moved on from the days of women having to resign from the workforce when they had children – or even when they got married.
Or indeed from where, in parts of the City, two decades ago, expenses submitted after taking clients to a lap dancing bar would be readily signed off.
Even as recently as 2018, not long after the Harvey Weinstein scandal emerged, the FT did an exposé on how sexual harassment was rife at a male-only dinner in the City.
Just a year earlier, the then-prime minister, Theresa May, had demanded the House of Commons introduce a mediation service and proper grievance procedures after a string of allegations involving politicians abusing their powers over staff.
From board rooms to parliament and even to TV studios, it seems that the abuse of power is still all too prevalent.
As Warren Buffett said: 'It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.'
These claims can destroy the credibility of the organisation, erode consumer confidence and rock its foundations. That’s why culture is so important.
Purpose underpins culture
Culture remains central to our supervisory model. It is what underpins outcomes – firms with healthy cultures will be best equipped to adapt to a changing world and to consumers with changing expectations.
Culture underpins conduct and therefore business performance and confidence.
That is why to work at a senior level in financial services, you need to pass and continue to meet the conditions of a fitness and propriety assessment. This includes consideration of honesty, integrity and reputation.
And individuals have been struck off for failing to meet the threshold of being fit and proper after being convicted of offences including holding child pornography, sexual harassment, and serious violence. Not disclosing arrests or convictions can also lead to a ban.
One executive received a life-long ban from us after being exposed one of the country’s most prolific rail fare dodgers.
Consumer duty changes culture
Increasingly, investors are demanding that they put their money towards 'doing some good’ for people and our planet.
Look at the Norwegian Sovereign Wealth fund, which on average owns 1.5% of every listed company in the world. For decades it was worried about being too outspoken, but in recent years started declaring its voting intentions at the annual meetings of all 9,000 companies it owns.
Alongside this, it’s stepping up its demands for all companies to set carbon emissions targets, and recently filed shareholder proposals on climate for the first time.
Our own work on sustainability disclosure requirements and investment labelling is crucial.
We are determined to clean up ‘ESG’ and ‘sustainability’ classifications, restoring credibility and confidence to the system, before cynicism destroys what is a potentially huge and beneficial market.
Culture is not just the slogan on your website. It is the very essence of what your organisation stands for, embodied by how it conducts itself.
Our expectations of firms are evolving and keeping up with the demands of consumers. They expect us – and firms – to do more, to do better
When parliament mandated us to create the Consumer Duty, we took the opportunity to change our approach, to do this in a way that was less prescriptive and more outcomes-driven.
The Duty puts the onus on financial service firms to design their goods and services with good consumer outcomes in mind from the start.
It comes into force in just over a month.
The higher standard of the Duty and the shift to focusing on customer outcomes will require a significant change in many firms’ cultures.
Firms’ boards and senior management, if they haven't already, will have to embed a culture in which good outcomes for consumers is central. People management policies and practices, including performance management, pay and bonuses will be critical to doing so.
Firms can expect at every stage of the regulatory lifecycle to be asked to demonstrate how their business model, the actions they have taken, and their culture are focused on delivering good customer outcomes.
Ultimately, the Consumer Duty should make life easier for firms and consumers as clearer expectations will be set out upfront.
FCA’s evolving culture
We at the FCA have undergone our own cultural shift in recent years.
We acknowledged the criticisms about the time taken in authorisations and we have moved to slash our queues by 60 per cent.
We are piloting an approach to application forms and other data-driven tools, with user experience (UX) as a major influencer to speed up our processes - without diminishing the thoroughness of our checks.
Ultimately, we are preventing serious harm, setting and testing higher standards, in order to promote market integrity, protect consumers and promote effective competition.
My background in financial services, over decades, means that that the moment I joined the FCA, I wanted the regulator to develop a stronger sense of the markets it served, understanding the impact of the approach we took to our internal operations and being clear in our dealings with firms in order to give certainty.
At the same time, our consumer facing call centre needed to be integral to the intelligence map we build across the UK that enables us to better understand developing areas of concern. I wanted to build that client-centric muscle, and you can see the results.
Sometimes regulation can be perceived as slow, but in the last few years we have adapted and responded.
Support from sandbox through the life cycle of a firm
As part of this client-centric approach, we offer guidance to firms in our sandboxes who want to become authorised.
And once they are through our authorisations gateway, we can nudge and help them through our Early and High Growth Oversight initiative.
We are nurturing innovation and the firms of the future with some regulatory handholding on the way.
This also fits with our proposed secondary objective, which is that as regulators, we must act to promote competitiveness and economic growth.
We are contributing to the country’s levelling up, opening offices to serve a financial services sector that flourishes far beyond the Square Mile.
We have opened offices in Leeds, with an emphasis on data expertise, as well as doubling our headcount in Edinburgh, alongside our presence in Wales and Northern Ireland.
Many of you will be aware of our sprints – we have held intense, multi-day sessions on topical innovations from crypto to how to use our register.
And when it comes to consumers, we want to change the culture too, putting them in the driving seat.
We want to empower consumers to make the right choices and to avoid increasingly sophisticated scams and we do this through our ScamSmart and InvestSmart campaigns.
And as financial services move to increasingly rely on AI, we are also probing the likely outcomes for this for consumers and markets. Alongside other regulators and the government, we are looking at how our existing rules will govern AI and how they will need to be adapted to take account of the new and amplified risks as well as the opportunities that the technology will unfold. Our approach and rules will continue to evolve, just like the technology.
Being open to change is desirable. But being an organisation that fosters openness is essential.
We want employees in financial services to feel they are psychologically safe to speak their minds and to raise concerns.
That is why we set out steps to improve whistleblower confidence earlier this year.
We also want employees to feel confident in contributing to debates and discussions about the future.
Diversity of thought is central to innovation.
We also plan to set out further proposals for Diversity and Inclusion in the coming months.
And we have set out a discussion paper on our Senior Managers and Certification Regime in line with the government request for a review.
Stopping repeat recruitment of bad apples
One area where we are focusing our supervisory efforts is tackling misconduct in wholesale markets.
We want firms to do their best to stop it from happening in the first place, so that means being aware of any past misconduct of new recruits.
The best predictor of future behaviour is past behaviour after all.
Wholesale brokers have told us it is all too easy for individuals who have been involved in misconduct to move from one firm to another, with few questions asked at the new firm. These individuals can become ‘rolling bad apples’, with their misconduct continuing.
We want firms to take their regulatory referencing far more seriously. If necessary, they should extend probationary periods, add extra monitoring or restrict activity.
New employers must satisfy themselves that the person they’re hiring to hold an official senior management function or certified function is fit and proper and not simply rely on the say so of a former employer.
Unfortunately, our work in this area with wholesale broker firms found that many firms were not properly considering adverse information in regulatory references when recruiting and onboarding certified staff.
We found some firms were willing to turn a blind eye to their new recruits being dismissed for market abuse, expense fraud and sexual harassment. They failed to put in place additional controls to prevent the individual repeating their behaviour. This was not only contrary to our expectations, but it also exposed the recruiting firm and their clients to unnecessary risks which could’ve been managed.
However, we have seen some good onboarding procedures being followed. These included firms proactively contacting the previous employer for more information to seek clarification on facts and undertaking their own investigations. These firms were better able to demonstrate making strong judgements on the fitness and propriety of their new hires.
On a recruitment roll
Look we know it can be tricky to attract the top talent at present.
A recent study by Workplace Intelligence found that 74 % of millennial and Gen Z employees would quit a job in a year if there were no opportunities for upskilling and development.
But the best way to do that is to offer not just incentives, but a clear purpose.
We had 2,500 applications for our apprenticeship programme this year. Out of that, 26 were offered places.
And our graduate scheme attracted – wait for it – more than 9,000 applications. We have made 115 offers to graduates who will start with us in September.
The odds of getting a ticket to Glastonbury, by the way, are far greater than getting a spot on our graduate scheme – 18% vs 1.28%.
Getting your culture right, is about increasing your chances of growing as a business – and attracting the next generation of recruits.
https://www.fca.org.uk/news/speeches...t-expectations
