5 Conduct Questions – for all of us, not just the Wholesale banks

I pen these words on 17 September 2019. By my calculation this means that there are just 58 working days to go until solo-regulated firms (i.e. those only regulated by the FCA) become subject to the Senior Managers and Certification Regime (SM&CR) on 9 December.

Actually, the working-day window is much narrower than that for firms that must send ‘conversion forms’ to the regulator ahead of Implementation Day – these must be submitted to the FCA by 24 November… only 47 working days from today.

So, time is getting very tight indeed.

One of the must-do actions for all firms before 9 December is to train their Senior Manager Function (SMF) holders and Certificated staff on the Conduct Rules. More specifically these people need to be trained on how the Conduct Rules apply to them in the context of the roles they are performing; a topic that is highlighted for discussion in the FCA’s ‘SM&CR Banking Stocktake Report’, published on 5 August:

FCA – Senior Managers & Certification Regime banking stocktake report

FSTP, Important reading, regulatory updates, key regulatory messagesThe Stocktake Report is an enlightening, highly informative and plain-English read, but some of you may be wondering about its relevance to the solo-regulated sector. Well, the simple answer is – it’s hugely relevant.

Why? A great deal can be learned from the experiences of firms that are already working within the Regime and striving to comply with its requirements. Many of the issues that they have faced and had to address will be the same ones that those in the solo-regulated sector are wrestling with at the moment. It would be daft not to take heed of the – often hard – lessons that have been learned by others who have gone before.

On that theme, another very useful reference document is the FCA’s paper, ‘‘5 Conduct Questions’ – Industry Feedback for 2017 Wholesale Banking Supervision’ published in April 2018. If you’re working in the solo-regulated world, please do not be put-off by the title, nor by the fact that the document is nearly 18 months old. Although it – and the original 2017 paper – is aimed ostensibly at wholesale banking, there’s a wealth of learning to be gleaned from its content, regardless of the financial services sector you currently inhabit.

It’s interesting to note some of the key words and phrases that feature prominently in the document – tone from the top; behaviour at the top; accountability; responsibility, scenario-based training. All of these should, one hopes, resonate strongly with those currently preparing to enter the Regime in December.

I’m a great believer in and staunch advocate of the concept of holistic compliance and admit to being somewhat nervous that some – dare I say many? – in the solo-regulated arena still seem to be viewing Conduct Rules in isolation, rather than seeing them as an intrinsic part of a far broader cultural vision. To this end, the ‘5 Conduct Questions’ document provides some invaluable pointers to the way in which firms can (and should) be making the ‘real world’ connections between Conduct Rules, Conduct Risk and Conduct Culture.

So what are the FCA’s ‘5 Conduct Questions’?:

  1. What proactive steps do you take as a firm to identify the conduct risks inherent within your business?

  2. How do you encourage the individuals who work in front, middle, back office, control and support functions to feel responsible for managing the conduct of their business?

  3. What support (broadly defined) does the firm put in place to enable those who work for it to improve the conduct of their business, or function?

  4. How does the Board and ExCo (or appropriate senior management) gain oversight of the conduct of business within their organisation and, equally importantly, how does the Board or ExCo consider the conduct implications of the strategic decisions that they make?

  5. Has the firm assessed whether there are any other activities that it undertakes that could undermine strategies put in place to improve conduct?

Here’s a useful exercise for you to have a go at:

Firstly, ask these 5 questions of your Board and / or Senior Management team (i.e. those who have a ‘duty of responsibility’). To really get the grey cells working ask them to consider the 5 questions in the context of their ‘reasonable steps’.

Secondly, ask the questions – adapted as required – at functional / departmental and even team levels, always taking care to ensure that they’re referenced back to the Conduct Rules and the firm’s overarching values.

Thirdly, compare the feedback.

The result is likely to offer a well-rounded and insightful view of your firm’s Conduct Culture. You may not like all, or some of what you see, but at least you’ll have sight of the issues and will be in a far better position to do something about them in a coherent and structured way.

Go on, give it a try! What’ve you got to lose?

Richard Galley

Director of Learning

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