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Culture change is key to robust regulation

More than half (53%) of financial services senior executives said culture was the most important factor to get right in order to avoid regulatory problems. Ensuring governance is a priority amongst board members – selected by 30% of c-suite respondents – was the second-most cited.

According to Kinetic Partners’ 2015 Global Regulatory Outlook (GRO) report, fewer than one in ten (9%) of senior managers polled put their faith in risk monitoring and compliance as the key factor to keep their firms out of trouble.

Monique Melis, global head of regulatory consulting for Kinetic Partners in London, explains, “The message is clearly getting through to firms that compliance policies and procedures aren’t enough to satisfy the regulators. They are looking for evidence of a change in the culture of the organisations, which is blamed for the financial crisis. The guidance from the FCA in the UK and the new Senior Bankers Regime both point to a desire to see fundamental overhaul in the way companies do business. That is going to be a long haul, and it’s being seen more and more as a generational challenge.”

Despite this, no senior executives, and only 5% of others, considered finding staff with the right regulatory skills to be the most significant element for averting major issues. Furthermore, when it came to recruiting compliance staff, technical knowledge of regulations was considered the most desirable trait by 44% of all those surveyed (and 45% in the c-suite). This is in comparison to 26% who cited practical experience in trading or operational roles and only 18% who prioritised leadership and management skills.

Melis commented, “Recent cases in the past six years have shown us that problems do not only arise from deficiencies in the compliance department. Often, it is the failure of a firm’s leadership to set clear expectations for the culture and related behaviours throughout the business that can have a more significant impact. If companies want to foster a compliance culture and develop a true voice for governance in the board room, they need to invest in people who bring with them not just the technical knowledge of the regulations, but the skills to change attitudes and behaviours at every level of the business. Some firms have begun investing in such skills, but we are still early in the & lsquo;early adoption’ phase of this approach. That is what the regulators expect, and it’s increasingly what investors and other stakeholders are looking for.”

The survey also found that companies may be leaving themselves exposed through a failure to invest in technological skills. According to the survey, just 6% of those surveyed believe that compliance system and software expertise are the most important skillsets when recruiting compliance staff. That is in spite of many regulators, such as the FCA, increasing investment in market surveillance systems and their growing expectations on firms, in terms of market monitoring obligations.

Melis concluded, “The FCA, in common with other regulators, has put significant resources into sophisticated surveillance technology, and it expects firms to have done the same. There is now a much greater emphasis on firms to be proactive in mitigating conduct risk, by setting the appropriate tone from the top and investing in the right tools. To get the most from that investment and ensure their systems are effective, firms should be checking that they do actually have the appropriate skills in-house.”

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