Taking notice of risk culture - The regulators approach

Abstract

Following the financial crisis and a series of mis-selling and rigging scandals in the financial services, organisational culture, and particularly the risk culture of organisations, has come to be regarded as a key issue for both financial firms and their regulators This paper considers the extent to which regulatory published notices, Final Notices (FNs), relating to breaches of the regulatory Handbook, are able to provide lessons, or pointers, in the development of appropriate cultures. By undertaking a qualitative content analysis of all the FNs in 2012, we examine the extent to which FNs draw attention to issues of culture, and to the regulators analysis of the drivers of culture published as part of its treating customers fairly (TCF) initiative. The analysis finds that, although not easy to extract, there are important learning points in FNs relating to organisational culture, and in particular to the factors driving behaviours and outcomes that are signs of poor culture. This paper suggests that, whilst it may not be for a regulator to dictate firms culture, it could do much more to make use of the content of FNs as a learning tool for firms; particularly in the context of its cultural framework for TCF. This would support the outcomes-based approach being espoused by the UKs regulators.