Finance Monthly March 2020 Edition

BUSINESS & ECONOMY - SM&CR 34 www.finance-monthly.com place in firms already, although solo-regulated firms may still be finalising their Certification arrangements. However, in the context of these recent ‘Dear CEO…’ letters, I would recommend firms revisit and strengthen their SM&CR arrangements in the following areas: 1. Conduct Rules training: In addition to the existingmessages in your training, you should raise awareness of the issues around diversity and inclusion and make clear connections between diversity and healthy culture. 2. Fitness and Propriety assessments: Theseshouldalsoincludequestions about non-financial misconduct and diversity and inclusion. Of course, the answers to these questions should be incorporated into the final assessment. 3. Regulatory References: Like conduct rules training and Fitness and Propriety assessments, references should include any issues of non-financial misconduct. 4. Reasonable Steps: Senior managers should not only conduct themselves in a manner which promotes a healthy culture, they should also document that they took the reasonable steps expected of a senior manager. Failure to do so could be problematic for that executive in the event of an investigation by the regulator. 5. Senior Manager Prescribed Responsibilities: For solo and dual-regulated firms, there are Prescribed Responsibilities for the key areas that the regulator has identified as being influential towards creating a healthy culture. The obvious ones are as follows: Senior Managers Regime Certification Regime Conduct Rules Regime Dual-regulated firms have in addition: Culture Remuneration Business Model Whistleblowing Working with the senior managers who have been assigned these responsibilities to ensure they understand how their leadership for these responsibilities can build a healthy culture will go a long way to evidencing progress. have defined these as Purpose, Leadership, Reward and Managing People. The plan also says that “diversity and inclusion (D&I) issues may have an impact on the fitness and propriety of senior managers”. Several speeches made by senior FCA executives in 2019 have reiterated these points. References to diversity and culture can be found in the ‘Dear CEO…’ letter to general insurers. The letter identifies the lack of diversity as an obstacle to creating change and states that non-financial misconduct should be taken into account when making judgements about a person’s fitness and propriety. So, what are we to make of this? One thing for certain is that our conduct regulator is leaving us all in no doubt that it believes that poor culture can certainly drive poor consumer outcomes and with the expectation that the responsibility for culture sits with both senior managers and the wider employee population. The FCA is also pointing to SM&CR as the framework that can act as the “catalyst” for that culture change. Because culture is unique to each firm and is so elusive to define, it would be naive in the extreme to simply say that by implementing SM&CR, culture will get fixed. However, what is reasonable to say is that implementing and embedding SM&CR in a firm will be a positive and powerful enabler to culture change and, in so doing, will avoid the kinds of ‘Dear CEO…’ letter highlighted above. The key components of SM&CR are well known and should be in