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Two recent speeches by senior FCA figures signal the regulators' continuing focus on healthy cultures as a driver of positive outcomes.   These issues will remain a priority into 2024 and beyond with the implementation of new rules on D&I and non-financial misconduct.  

The speech by Emily Shepperd, Chief Operating Officer and Executive Director of Authorisations, on 23 November 2023, drew a clear link between the regulator's expectations on culture, tackling non-financial misconduct and D&I and its objectives of better outcomes for markets and consumers.   Although she praised industry's apparent commitment and passion on D&I, from the FCA's perspective this has not always been backed up by clear purpose and action-oriented objectives.  As a result many  firms’ strategies were generic and and paid only lip service to driving change. Inclusion and good culture are driven by the right policies, controls and incentives, but aren't enough on their own. Firm strategies and purposes need to align to these actions.   

Ms Shepperd also referenced the FCA's proposed guidance to make clear that misconduct such as bullying and sexual harassment pose a risk to healthy firm cultures, enabling firms to take decisive and appropriate action when such behaviours occur.  Interestingly, both second and third line functions were identified as being key in helping SMFs achieve this by holding all leaders to account for their organisation's culture.  

These themes were echoes of an earlier speech by Sheree Howard, the FCA's Executive Director of Risk and Compliance Oversight, on 15 November 2023.  Drawing on New Zealand's ‘leaky homes’ scandal (which I'll admit was the first time I've seen 1980s Kiwi housing policy linked with financial services regulation), she emphasised the importance of fearlessness in order for healthy, purposeful cultures to thrive.  Employees must feel free to speak up and, even more importantly, their bosses should feel compelled to ‘listen up’. 

Ms Howard also noted the valuable roles played by the second and third lines in assisting senior management with its oversight of business activities.  She reminded firms that, when considering how the FCA may deal with an event of concern, it will often take into account the quality and independence of a firm’s lines of defence.  In her view good lines of defence pay a regulatory dividend in protecting the firm and its consumers.

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This article was co-authored by James Green and Trulie Taylor, Solicitor Apprentice.