Global Trustee and Fiduciary Services News and Views Issue 50

Global Trustee and Fiduciary Services News & Views | Issue 50 | 2018 33 This focused on: • The role of incentives in reducing misconduct in markets and institutions. • The international coordination of conduct in the fixed income, currencies and commodities markets. • And the coordination of the application of conduct regulation and the need for credible deterrence. Earlier this year, on 20 April 2018, the FSB published a “Toolkit for strengthening governance frameworks to mitigate misconduct risk”. 2 The FSB believes that mitigating misconduct risk requires a multifaceted approach. The toolkit identifies 19 tools that firms and supervisors could use to address 3 overarching issues that the FSB identified as part of its earlier work on misconduct, namely: • Mitigating cultural drivers of misconduct — including tools to effectively develop and communicate strategies for reducing misconduct in firms and for authorities to effectively supervise such approaches. • Strengthening individual responsibility and accountability — including tools that seek to identify key responsibilities and functions in a firm and assign them to individuals to promote accountability and increase transparency. • Addressing the “rolling bad apples” phenomenon — including tools to improve interview processes and onboarding of new employees and for regular updates to background checks to avoid hiring individuals with a history of misconduct. UK On 12 March 2018, the Financial Conduct Authority (FCA) published DP18/2 (Transforming Culture in Financial Services), a 120-page tome, which presents views from academics and industry thought leaders. 3 The paper is a set of 28 essays that express a wide range of views on what a good culture might look like, the roles of regulation and regulators, how firms might go beyond incentives, and how to change behaviour for the better. While the FCA was not requesting formal feedback on this discussion paper, it believes that it offers “actionable insights” for financial services leaders and practitioners to consider how they effect change in their organisations. These include: • Using behavioural science to guide incentives and cultural change. • Looking beyond the role of leadership in effecting change. • Applying strategic focus to the continuous process for adapting culture. • Fostering environments of trust to encourage openness and learning. • And applying a systems perspective in assessing both internal culture and external influencers. In terms of ultimate intent, the FCA, along with its industry partners, hopes “to explore questions such as how to raise management of ‘culture’ as a leadership discipline to the level of rigour and importance as ‘strategic planning’ and ‘risk management’.” 4 In the accompanying press release, Jonathan Davidson, FCA Executive Director of Supervision, Retail and Authorisations, says: 5 “Culture may not be easily measurable but it is manageable. So firms can and should take responsibility for ensuring their culture is healthy for both their employees and customers, which can complement and support their business strategy.”