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Remuneration & Incentivisation: Transforming Culture in Financial Services

FCA Updates on Rewards and Remuneration

2nd September 2019

On 28 August 2019, the FCA published a Dear Remuneration Committee Chair letter dated 19 August that had been sent to proportionality level 1 firms (deposit takers and investment firms with total assets exceeding £50bn).

The contents of the FCA’s letter described the FCA’s findings and observations from supervision of remuneration during 2018/19 and how it plans to assess firms throughout 2019/20, including discussing:

• Accountability
• Ex-post risk adjustments
• Diversity and inclusion; and
• Remuneration Policy Statement

In relaying their findings, the FCA stressed that culture and governance remains a key cross-priority for the FCA, and as set out in the FCA’s 2019/20 Business Plan, the regulator will continue to review firms’ remuneration and recognition practices to ensure that approaches to rewarding and incentivising staff reinforce healthy cultures and do not drive behaviours that might lead to harm to consumers or markets.

Transforming Culture in Financial Services

In addition, the FCA highlighted their plight, particularly over the last two years, at transforming the culture in financial services. One such milestone towards this has been the implementation of the Senior Managers & Certification Regime (SM&CR), soon to apply to all solo-regulated firms come 9th December 2019.

Back in early 2018, the FCA published a Discussion Paper on Transforming Culture in Financial Services (DP18/2) and also held a Transforming Culture Conference. Since then, the FCA advises that they have been exploring some key themes in greater detail, with one of these being incentives and recognition.

“Culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history, causing harm to both consumers and markets.

Given its impact and the role it needs to play in re-building trust in financial services, firms’ culture is a priority for the FCA. We expect firms to foster cultures which support the spirit of regulation in preventing harm to consumers and markets.”

FCA DP 18/2, March 2018

Incentives & Recognition

It seems that there has been ‘much discussion’ over the role that financial incentives has as a key driver of behaviour, and there is no doubt that the way an organisation incentivises its staff will drive its culture.

The FCA is therefore currently exploring other aspects of incentives – the non-financial drivers – and the increasingly important role of recognition and what really motivates individuals that work within financial services.

Firms should therefore expect the FCA to continue to focus upon:

 What motivates individuals in the financial services sector including in the role of non-financial incentives and recognition;

 The role of financial incentives in developing a successful business model; and

 How the interests of different stakeholders are viewed as competing and require a trade-off (e.g. consumers vs shareholders).

Those with views on these issues have been invited to email them to the FCA’s Transforming Culture team .

Read our latest articles, news and views affecting compliance and regulation in the UK Financial Services Industry.