In my role as Leader of PwC UK Financial Services People and Organisation, and Co-Leader of Conduct and Culture, I've been thinking a lot about Conduct Risk.
From conversations with some of the global financial services firms I work with, to discussions with colleagues in the sector, it is plain that this is something many are currently struggling with.
Confusion Over What Conduct Risk Is
The Financial Conduct Authority (FCA) leaves it up to organisations to interpret how Conduct Risk relates to their own operations. This ambiguity causes confusion both in terms of applying it, but also understanding who is ultimately responsible, particularly since the introduction of the Senior Managers Regime.
Most agree that Conduct Risk relates to the ability to deliver fair customer outcomes and market integrity.
But this is often interpreted as doing just enough to comply and avoid fines. Companies and individuals are not incentivised to do more, and because it is up to each of us to decide what is relevant to our businesses, Conduct Risk is often viewed as a box ticking exercise.
What if we viewed good Conduct as a revenue generator instead of a compliance issue? What if we perceived it as something that adds value to the business?
There is a business case for good Conduct but it requires changing preconceived ideas about compliance, and aligning organisational culture with a positive interpretation of Conduct risk.
Financial Services Firms Struggling With Culture
Cultural change is never easy. It involves aligning every aspect of the business with that culture, and this may challenge some very deeply embedded attitudes and motivations.
Take for example your customer relationship team. Their role is to sell however much you dress it up with customer-centric terminology. Giving employees a more empathetic job title is not enough if key behaviours are not also changed. If our relationship managers are purely focussed on meeting their targets and ticking the compliance boxes, can we really claim to be treating customers fairly?
Yet, when viewed from a sustainability angle there is a business case for the fair treatment of customers. Sell the right product to a customer and companies build trust. That trust is rewarded when customers return again, when they recommend a firm's services to others, or give positive reviews.
As a result companies do more business instead of dealing with the fallout from poor customer outcomes.
This requires changing behaviours, motivations and embedding a culture of good Conduct - doing the right thing for customers - throughout a firm. The responsibility for this is a shared responsibility: everyone must practice good Conduct.
Significant Desire To Do Better
Financial services firms want to improve the reputation of the sector as a whole, they want a return of trust, and they want to build sustainable business models.
Those firms that are driving cultural change share common characteristics:
Leadership: Good Conduct is coming from the top. Values have been defined that put integrity and the fair treatment of customers at their heart, and the senior management team are modelling good behaviour. Every decision made is aligned with those values, and the mind-set that Conduct is just a box ticking exercise for compliance is subverted.
Behaviours: 'Doing the right thing' is a value that many of us subscribe to in our personal lives, but in the corporate world 'being nice' and 'playing fair' is often deemed as weak. Successful organisational cultures are focused on enabling employees to always do the right thing, to question aspects of the company or products that are not aligned with this ethos, and to treat customers as they would like to be treated themselves.
Motivations and Incentives: Until relatively recently many employees were incentivised by offering rewards for hitting or surpassing targets. Yet this approach does not align itself with values of good Conduct. Is it too much of a leap to reward staff for good or outstanding behaviour, for great customer feedback, for building long-lasting relationships with customers?
Changing organisational culture is no easy task. Employees need training and support to help them change their behaviours, which can be deeply embedded from years of subscribing to a different set of values.
Whilst HR has a role to play, from recruitment and employee engagement, to aligning retention strategies with good Conduct, it requires senior management to really understand why good Conduct is good for business, once that box is ticked it becomes a logical step to take.