Global Trustee and Fiduciary Services News and Views Issue 50

Prime, Futures and Securities Services | Culture and Conduct 40 regimes in place in the UK and Australia and will look at those countries’ experiences, including potential pitfalls and costs as they explore the aspects of “such a framework to assess which work well and the outcomes they can deliver.” 18 Further thoughts on the CBI’s thinking on a proposed senior managers regime in Ireland are expressed in a 26 June speech by Colm Kincaid, Director of Securities and Markets Supervision at the CBI, in which he states: “The prospect of such a regime can be daunting for the individuals who face being subject to it. However, the evidence is there that such accountability regimes: encourage positive behavioural changes; improve corporate governance; and foster high-quality conversations within firms about who is responsible for what, and what is expected of peers.” 19 United States While there may not be a personal accountability regime on the horizon in the United States, the importance of conduct and culture is recognised by regulators. In an 18 June speech, Jay Clayton, Chairman of the U.S. Securities and Exchange Commission (SEC), speaks about the importance of developing, improving and reinforcing positive culture in US financial institutions. 20 In his speech, entitled “Observations on Culture at Financial Institutions and the SEC”, Chairman Clayton makes reference to the UK FCA’s DP18/2 (Transforming Culture in Financial Services). He comments on what he says is the discussion paper’s fundamental observation that “culture is not optional”. He also makes the observation that leaders of financial institutions, when tasked with driving positive changes in culture, “must recognise they are not writing on a blank slate or, for that matter, a single slate.” Integrally linked to this is the importance of knowing the culture that currently exists with your firm. As Chairman Clayton points out: “First, to be effective (day-to-day and long- term), management needs to know what the culture of the organisation is today, including the key drivers of that culture. Second, over time, whatever the cultural goals for your organisation may be, the chances of achieving them go up dramatically if you understand where your culture stands relative to those goals. In driving organisational culture, it is difficult, if not impossible, to get from A to B unless you have a clear sense of what A is.” In his speech, Chairman Clayton pays tribute to William Dudley, the retiring President and CEO of the Federal Reserve Bank of New York. It is worth noting Dudley’s comments from a prior speech on 26 March entitled “The Importance of Incentives in Ensuring a Resilient and Robust Financial System”. 21 While his comments are addressed from a banking perspective, they apply equally to financial services more widely. Dudley speaks about how the “three pillars” of regulation, supervision and bank culture must all play effective roles. The first establishes what is permissible, the second helps to reinforce those rules and evaluate controls and processes, and the third (bank culture) sets the norms for what is appropriate behaviour. Dudley goes on to say: “But, at the same time, these pillars are mutually reinforcing. In this way, regulation, supervision and bank culture are complements, and deficiencies in any of these pillars can be problematic. For example, as we have seen in cases of unsafe or unethical behaviour in recent years, strong regulation and supervision cannot substitute for deficiencies in bank culture — especially not on a timely basis.” Conclusion In an attempt at pulling together the various strands of the FCA’s discussion paper on transforming culture in financial services, Andrew Bailey, Chief Executive of the FCA, identified four themes: 22 • Is there a “right” culture in financial services? • Managing culture — the role of regulation. • The role of reward, capabilities and environment in driving behaviours. • And leading culture change. In suggesting some answers, he states: • There is no single “right” culture. It depends on circumstances, and there are certainly cultural characteristics that are highly suggestive of good outcomes.