Themes For The New Year - The FCA's December 2014 Enforcement Conference

The coming year sees a number of regulatory changes on the horizon, from the implementation of the new Senior Managers Regime to the FCA's review of its policy on penalties. In order to understand what will change from a regulatory perspective, it is perhaps necessary to understand why. One of the best guides to that is the text of the speeches made by Martin Wheatley and Tracey McDermott at the FCA's enforcement conference at the end of 2014. Both speakers used the opportunity to highlight the conference's key themes of culture and governance. In doing so, they touched on many of the issues which are at the heart of the public debate in relation to banks and their regulation, and which will continue to be topical into the forthcoming year.

In this update we consider some of the messages to be taken from what two of the FCA's most senior members have to say about cultural change within regulated firms.

Time needed for cultural change to take effect

Both Martin Wheatley and Tracey McDermott referred to positive signs of change at the tops of regulated firms, noting the increased role of compliance staff in product design and intervention in the running of the business. However, a notable point in both speeches was the disappointment felt that well-publicised scandals and fines of the past (LIBOR was mentioned by both) had not prevented the equally well-publicised scandals and fines of the present (foreign exchange at the forefront of the list). The impression conveyed was that the seeds of change appeared to have been sown, but the crop was still looking rather thin.

This is attributed by both to a failure to date to make cultural change felt within organisations below the top level. Martin Wheatley noted that firms had probably prioritised systemic changes over cultural ones in the wake of the financial crisis. While there was a clear message that the time for change had come (arguably some time ago), the discussion in relation to the difficulties of instituting it was somewhat more nuanced and without definite answers. The risk posed by poor culture is not, as Martin Wheatley noted, capable of measurement by formulae and metrics.

The distinction between obeying the rules for fear of getting caught, and obeying them because you believe it to be wrong not to, was brought out by Tracey McDermott in an analogy with the change in generational attitudes to drink driving. She noted that while her parents' generation was only deterred from drink...