Shifting Perceptions of What's "Acceptable" in Compliance
Jinfo Blog

By Andrew Lucas

Abstract

Andrew Lucas reports from the recent annual Thomson Reuters Compliance & Risk Summit where Tracey McDermott of the UK Financial Conduct Authority spoke on how the regulator's approach to policing the market is changing and the impact this will have on firms and their senior managers.

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A major theme to emerge from the Tenth Annual Thomson Reuters Compliance & Risk Summit was the increasing focus by regulators on conduct risk and corporate culture. The move from rules-based compliance to a more conceptual approach creates challenges for both organisations and regulators in how compliance can be measured or quantified.

For the information function in companies it may require a review of the information that management needs to help them successfully cope with these new requirements, which are incremental to the existing regulatory requirements.

What Drives Firms' Behaviour?

Speaking at the summit in London, Tracey McDermott, director of Enforcement & Financial Crime at the UK Financial Conduct Authority (FCA), talked about how the regulator is using behavioural economics to help them understand what really drives firms’ behaviour and how this affects competition.

Changing the Financial Services Culture

This rather more fuzzy approach to policing the market is also reflected in the desire of regulator to drive a change in the culture of financial services companies.

According to Ms McDermott, the problem with the financial services culture in both the UK and other parts of the world is that the pursuit of revenue has become the primary goal of business irrespective of whether they are selling the wrong products to the wrong people.

Ethics Over Profit?

In future, says Ms McDermott, firms have to incentivise good behaviour and to shift the balance in favour of ethics over profit. However, it is not for the regulator to define an "ideal culture".

But regulators can and will test and challenge assertions about what the culture of an institution is by looking at outcomes.

Holding Senior Managers Accountable

One of the roles of regulators is to shift the perception of what is acceptable. Ms McDermott emphasised that the overall responsibility for the culture of companies comes from leaders and senior managers and they must emphasise their regulatory responsibilities.

The focus on "doing the right thing" is not purely rhetorical, Ms McDermott emphasised that “in order to achieve credible deterrence, senior managers must be held to account”.

The Compliance War

The challenges presented by this new front in the compliance war was picked up in a number of the other sessions at the Thomson Reuters conference looking at how internal audit can assess organisational culture and work with other compliance functions to help mitigate risk.

So what are the takeaways for information managers from the Thomson Reuters summit? The spotlight on both corporate and management behaviour and the potential personal liability will mean that these are issues that will get the attention of not only compliance teams but also boardrooms.

For information managers it is important that all relevant functions (compliance, audit, legal and C-suite) within their organisation are receiving appropriate, up-to-date information on these new responsibilities and potential liabilities.

Editor's Note

FreePint Subscribers can log in to read and share more in Andrew's article, Changing Compliance Culture in the Financial Sector. 

This article is part of the FreePint Topic Series: What You Need to Know Your Customer (KYC) running from July-September 2014 which includes articles, reviews and expert tips. Register your interest now, and you'll also get a free PDF report with selected premium articles when it's published in September.

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