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FCA chief has ‘serious concerns’ that recovery will drown out culture change

The financial services industry has the “narrowest of opportunities” to make cultural change stick before the economy recovers and the financial crisis is forgotten, says FCA chief executive Martin Wheatley.

In a speech to the Worshipful Company of International Bankers yesterday, Wheatley said he has a “serious concern” that economic recovery will bring so much investor pressure for growth that culture and ethics will become second or third order issues.

He said: “We have the narrowest of windows here to make cultural change stick before memories of financial crisis fade. The key challenge is how we take advantage of this ‘opportunity’.”

Wheatley said the industry can achieve this through “effective, future-proofed regulation” from the FCA, and effective self-regulation.

He said: “The key issue here is how do firms create cultures that are genuinely different from those pre-crisis? And, crucially, how do we encourage change that keeps pace with economic growth? In other words, a culture strong enough to resist short termism.”

He cited a survey of senior executives in financial services by the Economist Intelligence Unit last year, which showed 53 per cent of executives said career progression at their firm would be difficult without flexibility over ethical standards. Wheatley said this suggests some business leaders are still struggling to get their message across.

Wheatley said: “This suggests not all cultural reform proposals have been understood or accepted; it is imperative they are.”

He added: “Perhaps our best hope for the future remains the fact that the promotion of strong ethics in firms is not a zero-sum game.

“We cannot hope to avoid all future crises, or anticipate every issue that bubbles up. But we can safely say it is in all our interests to choose long-term, sustainable growth – over short-term ‘enchanted wealth’.”

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Comments

There are 15 comments at the moment, we would love to hear your opinion too.

  1. What a boring man he is. Does he ever have anything positive to say?

  2. This is mainly a discussion of logic. Presumably what is meant by a bad culture in this context is one where the informed take advantage of the ignorant. One can appreciate that this needs to be addressed from the perspective of the more arcane and complicated products, but for much of this it is the public who are being nannied. Can you really protect idiots from themselves? Is the educational standard to poor in this country that you need a public nappy changer in the guise of a regulator?

    Indeed does the Regulator truly believe that it can achieve a 100% result? If so it needs to sit in a dark room and ponder. I would have thought that the best was forward would be better education, but judging from some of the teachers and teaching standards that I have come across, that seems a bit of a vain hope.

  3. It is also worth taking a close look at the regulatory culture.

    At the moment it is one of stick and fear. Firms that try and do things right are often disadvantaged for doing so as their competitors ignore the call from the regulator for the industry to ‘find a solution’. Worse – many compliance officers are resigned to the fact that a visit from the FCA that turns over enough rocks will find something wrong that results in a hammering. Worse still – fewer firms are relationship managed meaning there is no general overview and a poor thematic review is not seen in context. There is a very real feeling of helplessness in the face of the current regulatory culture that is hugely damaging.

    The result is a compliance culture in firms that is focussed on the regulations and how to satisfy the regulator rather than clients and outcomes. The FCA need to face the fact that they are responsible for engendering this culture. If you oppress a good firm you end up with a bad firm.

    Overheard recently… discussion between CEOs about S.166s. The view was that there are so many that it’s not such a big deal. Indeed, if you haven’t had one you’re not trying hard enough. Sort of said in jest but there’s a very serious message.

    Many larger firms have got to the point where they see regulatory fines as a simple cost of doing business because it’s highly likely to happen at some point no matter how hard you try – one of the consequences of the continual re-interpretation of existing rules.

    On a positive note most firms just want a fair crack of the whip and the opportunity to operate in a culture and environment free from blame and politics. I feel like breaking into song with John Lennon’s ‘Imagine…’.

  4. The idea of someone pointing the finger at Harry has taken on a whole new meaning…

  5. “53 per cent of executives said career progression at their firm would be difficult without flexibility over ethical standards”.

    If that’s the case then Mr Wheatley is correct to be raising this issue. Ethics should not be flexible.

  6. Julian Stevens 5th March 2014 at 1:44 pm

    Didn’t the financial crisis result in large measure from lack of regulatory oversight of what the banks were doing, notably in terms of their reckless lending practices and buying toxic packages of unrepayable mortgage debt? But all the regulator could focus on with its typically maniacal blinkered zeal was its RDR, branded just a day or two ago by a certain think tank as “an absolute disaster”.

    You need to get out more, Mr Wheatley, and see for yourself how things work in the real world or how, as a result of excessive and misguided regulation which the FCA seems to be hell-bent on perpetuating, things in the real world are struggling to work.

  7. You show me a really successful person – in any field and I’ll show you someone who has bent the rules or been less than cuddly.

    You only have to watch Dragon’s Den to see the fat cats ripping off the rather desperate people seeking funding. Sure they are not charities but 40% of a company for a piffling £50k over a few months! This is a national TV programme – and I would say pretty short on ethics. What sort of example is this? I haven’t seen anyone on the panel suggesting alternative – and cheaper – means of funding.

    @Grey Area

    Sorry I’m being slow don’t geddit re the finger.

  8. Pfftt !!!!

    Don’t talk to me about culture change, anyone know where to get some gold cup tickets this year ?

  9. @Harry

    Your reference to the proctologist… :¬)

  10. Steven Pearman 5th March 2014 at 3:34 pm

    I want to know whose ethical standards we are supposed to be using as a yardstick to gauge what is ethical?

    If being ethical gives me the ability to absolve myself of any responsibility for anything that goes wrong: whilst paying myself a massive salary earned by someone else and paid for by their clients then sign me up for the gravy train.

  11. Ian H0w00d1234 5th March 2014 at 4:59 pm

    abacus test comment

  12. @ Grey Area

    Ah yes the deathly sound of a snapped on rubber glove.

    Anyway lets end this debate. Eny fule nose that Effics is next to Middlesex.

  13. Anyone with an ounce of knowledge about culture, organisation or otherwise, knows that it does not arise quickly, and it doesn’t arise according to a timetable or anyone’s personal sense of urgency.
    Anyway – the regulator who got rid of rules in favour of principles perhaps should now review their position in the light of this apparent admission that “principles-based” regulation is a futile pursuit – better to just go back to rules – easier to implement, easier to follow and easier to know whether you’re on the right side of them or not.
    If there really is such a serious failure in culture and principles and ethics then just get on and tell us what you want from us.

  14. @ Gill

    Who could put it better?

  15. @ Gill

    The danger of received wisdom… Having been through mergers and acquisitions I would beg to differ somewhat on your assertion on speed of culture change. There is also plenty of academic and practitioner experience that suggests culture change can and should happen quickly to be effective. What we’re seeing with banks is clear evidence of that. Fail to force change and you allow people to revert to type.

    Try reading ‘Five Frogs on a Log’ by Feldman and Spratt for starters. These guys have been there, seen it and done it like few others.

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