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JUL

The Only Way is Up: FCA Committed to Continuing Culture Focus

Posted in: Blog

With the publication of a report into the threat of financial mis-selling by the Public Accounts Committee (PAC) identifying cultural issues as a significant contributor to the risk of future mis-selling scandals, the industry has been reminded once again of the importance the regulator places on positive culture.

But internal culture is only one piece of the puzzle, firms need to consider how the culture along the whole supply chain has an impact on the treatment, and outcomes, customers receive.

How the Regulator Sees It

The FCA has made it clear that it expects firms to put clients at the heart of all business decisions, as this is a strong indicator of a positive customer-centric culture. The issue is that the FCA’s stance is very broad and, as a result, is causing some uncertainty and confusion over what a positive culture looks like in practice and how to effectively implement it.

The FCA has publically stated that it won’t dictate to firms what their culture should look like, and new Chief Executive, Andrew Bailey has also said that there’s no single way to regulate or assess culture as it’s not tangible. Therefore the regulator’s approach has always been to drill down to the individual elements that determine a firm’s culture in order to assess its appropriateness. This can be seen in the introduction of the Senior Manager’s Regime and the renewed focus on incentives, amongst other areas.

 

Product Design and Distribution

Providers looking to ensure they have a customer-centric culture will need to consider how they put clients at the heart of the product design stage, including how it meets the needs of the target market, their levels of financial literacy and their level of engagement.

But this responsibility isn’t only on providers, advisers must also ensure products and services are only sold to those for whom they are suitable. If the intermediary’s culture is not aligned to the needs of the customer, there’s the potential risk of detrimental customer outcomes.

Communication is one area where a cultural mismatch can become an issue. If a firm isn’t able to outline the features, benefits and drawbacks of its products and services, it can indicate a failure, at product design stage, to meet the needs of the target market.

Conflicts of Interest

Increasing levels of regulatory activity in recent years has led to a shift in the dynamics between providers and advisers, particularly around inducements and conflicts of interest. While the requirement to tackle poor practice and take responsibility for both sides of the provider-adviser relationship has been around since the days of the Financial Service Authority (FSA), there is now greater attention in this area.

A failure to manage conflicts of interest, or weak controls in this area, can indicate wider, or more serious, cultural issues. Effective conflicts of interest management involves the careful review of any benefits or inducements on offer, in order to gauge whether they are compliant.

There are positive changes happening in the industry. Providers have begun to control the risk of conflicts of interest more effectively, by restricting the inducements or benefits on offer. Advisers are also becoming more adept at challenging the information provided to them, particularly around the subject of product performance.

 

Now firms need to look at taking the next step towards a customer-centric culture, including assessing whether all partners within the supply chain share similar cultural values and are focussed on treating customers fairly.

 

http://www.theconsultingconsortium.com/the-only-way-is-up-fca-committed-to-continuing-culture-focus/# 

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