Compliance, Culture and Evolving Regulatory Expectations

Mark Steward, the executive director of enforcement and market oversight at the FCA, remotely delivered a speech entitled “Compliance, Culture and Evolving Regulatory Expectations” at NYU Law School.

The majority of Mr. Steward’s speech focused on the Senior Managers and certification regime (SM&CR) and the FCA’s five conduct questions (5CQ), with Mr. Steward also discussing two insider dealing cases.

With regard to SM&CR, Mr. Steward noted that while the regime is not a cure-all for firm misconduct, as breaches can still occur without senior managers falling foul of their responsibilities, SM&CR has brought about important changes. For example, Mr. Steward highlighted that the regime has significantly changed how firms apportion responsibilities amongst Senior Managers and align those responsibilities with appropriate controls and necessary oversight. SM&CR also necessitates that firms incorporate reasonable steps into their systems to stop noncompliance and reduce misconduct by assigning personal accountability to Senior Managers.

As for the 5CQ, Mr. Steward noted that the questions are a tool developed by the FCA to assist both firms in implementing change and to assist the FCA in determining progress. The 5CQ, which firms are meant to ask themselves, are as follows:

• What proactive steps do you take as a firm to identify the conduct risks inherent within your business?
• How do you encourage the individuals who work in front, middle, back office, control and support functions to feel and be responsible for managing the conduct of their business?
• What support (broadly defined) does the firm put in place to enable those who work for it to improve the conduct of their business or function?
• How does the Board or ExCo consider the conduct implications of the strategic decisions that they make?
• Has the firm assessed whether there are any other activities that it undertakes that could undermine strategies put in place to improve conduct?

Mr. Steward also noted that the FCA may add a sixth question regarding diversity and inclusion. He also highlighted that the 5CQ have undergone a journey since being implemented, with the focus changing from the “tone from the top” to the “tone from within.”

Mr. Steward’s full speech can be read here.