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FCA looks to target behavioural biases behind compliance failures

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Regulators could be missing a trick when it comes to improving compliance if they do not understand social and psychological influences on decision making, researchers at the FCA say.

In an occasional paper published today, titled ‘Behaviour and Compliance in Organisations’, the authors show how people are susceptible to behavioural biases in the workplace.

An FCA article on the paper says: “We know that people behave differently in group situations, so it naturally follows that culture is an important determinant of compliance. Recent history tells us that groupthink in firms, where cohesive groups take poor decisions with limited scrutiny, can lead to poor governance and insufficient challenge.

“In view of this, it is only logical that regulators complement credible deterrence with approaches that use insights from psychology and other disciplines. In order to improve the environment for compliance decisions, and so produce better outcomes, regulators must change the situational factors that determine how decision makers respond to incentives to break rules.”

It cites the senior managers regime as a way of improving individual accountability.

The paper also highlights how misconduct can sometimes be incentivised. This was the case with payment protection insurance misselling.

The article says: “Incentives are an important driver of culture, as the way that individual group members respond to incentives can shape the norms of the group as a whole. For example, poor culture in the banking industry in the period leading up to the financial crisis has been attributed, including by some within the industry, to the structure and levels of employee compensation.”

The article concludes: “In a nutshell, combatting ideologies that trivialise poor behaviour – from ensuring that staff remuneration does not promote poor behaviour to ensuring that moral considerations are part of individual decision-making – is a logical and necessary enterprise in the pursuit of good conduct.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. What about behavioural biases behind regulatory failures? Given the magnitude of the consequences of such failures (PPI, Arck, ArchCru, Harlequin, Connaught, etc), those surely warrant examination at least as close to that of compliance failures?

  2. OOh “behavioral biases” you say? Well that certainly sounds woolly enough not to have to deliver anything of any use to those who have lost billions due to FCA inaction/incompetence.

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