In a compelling speech delivered at the 10th Annual Culture and Conduct in Financial Services Summit, Emily Sheppard, Chief Operating Officer of the Financial Conduct Authority (“FCA”), emphasised a powerful message: “Culture is contagious“. The Financial Services sector has been eagerly awaiting movement on the FCA’s new Diversity and Inclusion (“D&I”) regulatory framework since September 2023 when CP23/20 was first published. Publication of the final policy statement saw unprecedented delays as the regulator readjusted its focus onto culture and Non-Financial Misconduct (“NFM”) in particular. Whilst NFM was introduced as a lesser item in the new framework, the FCA have since indicated that this area has become a major focus, conducting firm-wide reviews on the topic and publishing their findings in October 2024. Fast forward to February 2025, Emily Sheppard has revealed that the final policy statement and framework is set to be unveiled ‘shortly’.
The Ripple Effect of Culture
Sheppard’s speech highlighted that culture within financial services is not just an internal matter but one that affects consumers, markets and the broader economy. A healthy culture fosters innovation, agility and long-term success, whilst a toxic culture can lead to significant harm. The FCA’s focus on culture is driven by its mandate to protect consumers, ensure market integrity and support economic growth.
Addressing Non-Financial Misconduct
One of the critical points Sheppard covers is NFM. NFM encompasses a wide range of issues such as bullying, harassment and discrimination. These behaviours are clear indicators of a failing culture and can spread like a “winter bug” if not addressed. The FCA is actively working to update its rules and guidance on NFM, stressing that firms must take decisive action when such misconduct occurs. It is clear that the FCA plan to incorporate NFM as a key consideration when assessing the fitness and propriety of SMFs and CFs moving forward.
The Importance of Psychological Safety
Sheppard also stressed the importance of psychological safety in the workplace. Environments where employees feel safe to speak up, challenge ideas and admit mistakes are more likely to thrive. This openness not only prevents groupthink but also supports better decision-making and risk management. Firms with strong, inclusive cultures are better positioned to attract and retain top talent, driving their success in the competitive financial landscape.
The Role of Senior Managers and Certification Regime in Strengthening Corporate Culture
Building and maintaining a strong, positive culture can be challenging, especially in complex and demanding environments. Yet, it is one of the most powerful tools for driving success, gaining a competitive edge and enhancing long-term resilience. The introduction of the Senior Managers and Certification Regime (“SM&CR”) has been instrumental in promoting personal responsibility and accountability within firms. By clearly defining roles and responsibilities, the SM&CR has helped improve conduct at all levels, leading to better governance, sharper decision-making, and more effective risk management. The FCA acknowledges that there is still more work to be done however, and it is expected that the new D&I and NFM frameworks will have implications in terms of Board, SMF and staff compositions alongside major conduct considerations.
Effective Enforcement
Whilst the SM&CR’s primary aim is prevention rather than sanction, enforcement is also a critical part of the FCA’s framework. Speed in enforcement matters, which is why the FCA has streamlined its investigation portfolio to focus on impactful deterrence. Recent cases with Volkswagen Finance and Starling Bank, which were resolved in 13 and 14 months respectively, demonstrate significant improvements compared to the average of 42 months for cases closed in 2023/24. These examples highlight the FCA’s commitment to efficient and effective enforcement, ensuring that accountability and good governance are upheld across the financial services industry. Firms should take note that the FCA will look to take quick action where issues pertaining to D&I or NFM are highlighted.
How to Make Culture Work for You
How can businesses harness the power of culture to drive success rather than risk exposure? Here are three key takeaways from the FCA’s insights:
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- Leadership Matters: Culture starts at the top. Leaders must embody the values they wish to instil, fostering an environment of accountability and ethical decision-making.
- Empower Employees: A strong culture is one where employees feel psychologically safe to raise concerns, challenge the status quo and contribute to ethical business practices.
- Measure and Adapt: Culture is not static. Businesses must regularly assess cultural health, gather employee and customer feedback and be willing to make necessary changes to align with best practices and regulatory expectations.
The speech emphasises that firms must recognise that the way they operate internally has a ripple effect, shaping their reputation, regulatory standing and long-term success. It has long been understood that the ‘tone from the top’ is crucial. Firms should ensure they are up to speed with D&I and consider implementing changes as necessary ahead of publication of the final policy statement, or risk falling behind.
How Complyport can Help
Complyport can help businesses align with regulatory expectations and strengthen their compliance framework by:
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- Regulatory Compliance Support: Providing expert guidance on meeting FCA requirements, including SM&CR, D&I implementation and ongoing compliance;
- Culture and Governance Advisory: Helping firms build and maintain a positive corporate culture that aligns with the D&I regulatory expectations and industry best practices;
- Risk Management Consulting: Assisting in identifying, assessing and mitigating risks to ensure robust governance and operational resilience;
- Compliance Training: Offering tailored training programs to educate Senior Managers and employees on regulatory obligations and ethical conduct;
- Policy and Procedure Development: Supporting firms in drafting and maintaining effective policies that meet FCA standards and drive ethical business practices; and
- Independent Audits and Reviews: Conducting compliance audits and culture assessments to identify gaps and recommend improvement
