Government regulation alone can be insufficient in improving conduct by financial professionals and incentivising them to act in the spirit of the law, the UK Financial Conduct Authority has said.
In an essay included in the UK business regulator’s Transforming Culture in Financial Services report, FCA senior adviser John Sutherland argued that “it is not enough to say what behaviour is required, it is what drives behaviour that matters” when discussing financial services.
“If the tone from the top talks about customer outcomes but senior leaders reward income generation then expect customer outcomes to be paid lip service whilst income grows.
"Moreover, the workforce, and customers, will see senior leaders as untrustworthy,” he said.
Mr Sutherland said it was important to distinguish between a rule and a principle, adding that it’s harder for firms to determine whether or not their staff has met principles than rules.
“An example of a rule would be a requirement to hold investment records for a set period,” he said.
“Judging whether a principle has been met is more difficult than a rule. The latter is fairly straightforward, in this case, on record keeping.
"Whereas the principle involves nuanced judgement; what is meant by the interests of the customer and what constitutes fair treatment?”
Mr Sutherland said this is the reason regulation alone will not be able to rectify poor behaviour, and that increased managerial accountability for misconduct is needed.
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