Transforming conduct and culture should still be a priority for financial services firms

The FCA’s statement earlier this month made clear that regulated firms needed to have contingency plans in place to assess operational risks; ensure they are able to continue to operate effectively and take steps to serve and support their customers.

Keeping on top of regulatory compliance is important at all times, but no more so than right now in the context of an increasingly remote workforce dealing with sensitive financial details and customer confidentiality.

How firms conduct themselves, however, is something that’s been the focus of public attention for a long time now. Even more so since the revelations of ‘unacceptable levels of risk-taking’ by firms in all sectors of financial services, identified from the fallout of the 2007-08 financial crisis.

As a consequence of that crisis and the subsequent collapse of one or two major players, not to mention the detriment to consumers and our economy as a whole, it became essential that the industry make strides to improve confidence and conduct in Financial Services.

Since that time more stringent conduct rules have been put in place by the regulator and apply now as much as they ever do, particularly in acting with care and diligence.

Conduct rules

• Rule 1: You must act with integrity.
• Rule 2: You must act with due skill, care, and diligence.
• Rule 3: You must be open and cooperative with the FCA, the PRA, and other regulators.
• Rule 4: You must pay due regard to the interests of customers and treat them fairly.
• Rule 5: You must observe proper standards of market conduct.

The FCA also implemented the Senior Manager and Certification Regime (SM&CR) to enforce accountability at a senior level for all regulated firms and there are four conduct rules to accompany the regime.

Senior manager conduct rules

• SC1: You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
• SC2: You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
• SC3: You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
• SC4: You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.

These requirements have been made well known. So, why are we talking about this again now?

This is likely a time where firms are coming up against issues they have never faced before, even during 2008 and the aftermath of the crash.

The first rule of the SMCR framework is particularly pertinent today, given that firms all over the world will now be putting their business continuity plans into action. This will be a true test of how Senior Managers have followed the guidance required of them in the regime and how mitigation measures work in a real-life scenario.

In addition, the FCA has recently become the regulator to other sectors such as ‘Claims Management Companies’, while other regulated firms (Solo regulated firms particularly) have more recently been embraced by the Senior Managers and Certification regime, meaning a wider range of firms need to now be familiar with the regime and what is expected of them.

These firms will have a requirement to train most of their staff on the Conduct Rules by December 2020 but it remains to be seen whether there will be an extension for firms given the current unprecedented circumstances.

Philippa Grocott, Partner at Financial Services Training Partners (FSTP) comments that:

“In the Senior Managers and Certification Regime Banking Stocktake Report, the FCA was keen to highlight that their "evidence suggests that firms have not always sufficiently tailored their conduct rules training to staff job roles .......Many firms were often unable to explain what a conduct breach looked like in the context of their business". Our experience at FSTP echoes this.”

So, what’s the solution?

In principal no-one disagrees with good conduct, after all, we are all consumers, so we all expect our providers to do the right thing by us every time and your consumers are no different. But, getting all your staff to do this at all times and be able to confidently govern the application of the rules is a good deal more in-depth and that’s where the right training becomes an effective and essential part of a firm’s tool-kit in ensuring all your staff knows what they have to do and how.

Philippa remarks further that:

“Firms that we trained on the conduct rules had role-specific case studies, so it was easy to evidence that the firm had taken "reasonable steps to secure that those persons understood how those rules apply in relation to them."

Banks that took the high-level generic approach previously are now working with us to deliver the correct approach.

What can you do now?

Training is critical to the success of conduct change and ongoing effectiveness. The advantages of engaging eLearning also include being cost-effective and being able to train unlimited numbers of staff simultaneously with the same consistent style/approach and message.

Working in collaboration with FSTP, we have applied a case study approach to our eLearning. Through this case study matrix, our eLearning now presents over 30 case studies applicable across various roles within FS. Selection options will lead you to a case study likely to be more closely associated with your role. By doing this you will see a realistic and more relevant scenario with interactive questions related to how the conduct rules apply in the scenario.

A CLEARER UNDERSTANDING OF THE EXPECTATIONS, ALONG WITH THE RIGHT ATTITUDE AND APPROACH TO CONDUCT, NEEDS TO BE PART OF YOUR FIRM’S DNA.

Re-enforcement and consistency of the right messages, coupled with a demonstration from the top-down incorporating SM&CR, will lead to change. If you couple this with training that repeats that message; the only way is forward for your firm.

Take a look at our comprehensive governance, risk, and compliance courses

Alternatively, if you'd like to get in touch to discuss our Conduct Rules and SM&CR eLearning, please email [email protected].

 

Explore our Access Digital Learning and Compliance software