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Culture Audit in Financial Services
Reporting on Behaviour to Conduct Regulators
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About the book
In the next wave of conduct regulation in financial markets, from 2021 conduct regulators in the UK and elsewhere expect firms to produce evidence on how they are improving behaviour and culture. Facing this, many practitioners are anxious that their current reporting and management information (MI) are irrelevant to meeting as-yet unclear regulatory expectations.
This book provides the insights and tools firms need to report on culture, securing both enhanced business value and the regulator's approval. Culture is now seen as a key contributor to good governance, feeding into existing discourse on environmental, social and governance (ESG) factors and the emerging dialogue on 'non-financial (mis)conduct', but conventional measures of business quality are unfit for the new reporting agenda. Culture Audit in Financial Services follows the arc of 'behavioural regulation' to examine what the regulator really wants, before offering guidance on how culture audit differs from conventional auditing, how to put the latest pure-research findings to work, and the key features of well-designed conduct and culture reports.
Written by an impartial author and a variety of contributors with extensive experience working with practitioners, regulators, and many of the world's finest academic initiatives, this book is filled with practical, grounded advice on how best to approach this new challenge and avoid infractions.
About the authors
Table of contents
- Chapter - 01: A culture quest for ‘better behaviour;
- Chapter - 02: ‘How regulators’ ‘behavioural approach’ went global – with culture its latest focus;
- Chapter - 03: ‘The house is on fire - How regulators own research has pointed to ‘culture reset’;
- Chapter - 04: What’s the big idea? (1) - How conduct regulators use behavioural science;
- Chapter - Interlude One: From poacher to gamekeeper to poacher… to scientist - A supervisor’s tale;
- Chapter - 05: What’s the big idea? (2) - Regulators’ challenge to firms - framing ‘purposeful culture’;
- Chapter - 06: A ‘behaviour-at-risk’ agenda emerges - Questioning purpose, lost trust and cultural coercion;
- Chapter - 07: The new mindset and language of culture - Assessing financial and non-financial conduct;
- Chapter - 08: Audit basics - How the practice of culture audit differs from conventional auditing;
- Chapter - 09: The new management reporting information (MI) for culture Part 1 - Getting past the old MI;
- Chapter - 10: The new reporting Part 2 - Developing the framework - from culture models to better questions and indicators;
- Chapter - Interlude Two: Case example - Culture rating in a retail bank;
- Chapter - 11: Interventions and enforcements - How regulators have responded to a ‘culture crisis’;
- Chapter - 12: Intelligence gathering versus surveillance - Tried and failed methods; putting the latest research tools to work;
- Chapter - Interlude Three: A sector-wide group seeks culture ‘tells’ - (Observing indications of good and poor conduct);
- Chapter - 13: Putting respected research tools to work, example 1 - Tools for cultural transformation - Barrett Analytics;
- Chapter - 14: Putting respected research tools to work, example 2 - Using the CultureScope ‘combined analytic’ to deliver measurably better culture;
- Chapter - 15: What regulators really want - Wrap-up and look ahead;
- Chapter - 16: Glossary;
- Chapter - 17: Recommended reading;
Reviews
Roger Miles has brought together a stellar group of experts in conduct risk and fashioned a unique resource for the financial services industry and beyond. The authors and Dr Miles himself have been there, done that and have the t-shirt when it comes to conduct risk management. Oozing with practical wisdom, this book brings concepts from psychology and behavioural science to a financial services audience, to help address the seemingly intractable challenge of workplace misconduct. Culture change programmes fail at least as often as they succeed, but Culture Audit contains many insights that will enhance the chances of success.
As a business school professor teaching post-experience, post-graduate programs, I'm often looking for material that is evidence-based but accessible; that avoids bland motherhood statements and excites interests; that presents solutions that are seen as feasible and not utopian. This book has all those qualities and I expect it will help the industry chart a new course, consistent with its recent aspirations. A must-have for financial services leaders and regulators, and those who aspire to such roles.
I really like the multiple-author approach, and what a list of co-authors! There's huge value in just being able to read insights from this remarkable group of people all in one place. Their different perspectives throughout, and their evident sense of fun, make Culture Audit really engaging and thought-provoking. A set of 'Interlude' stories also brings the theory to life, such as the hugely enjoyable account of how a central bank supervisor went on to 'rebrand' an investment bank's compliance department as behaviour-aware - a mindset shift that would benefit many firms.
Culture Audit's view of the genesis of conduct regulation, and robust predictions for its future, ground our understanding of why it's now so vital for firms to focus on culture and behaviour. The book is always engaging - it's as if the reader is enjoying a chat with the authors - and thankfully avoids getting bogged down in regulatory small print. With so much still to be done to improve financial sector culture, here's a book which really will spark timely conversations in firms: importantly around purpose, psychological safety, diversity and inclusion. These are vital foundations for any firm to set out, then act on to start a lasting culture change. Culture Audit jump-starts these conversations in a friendly, understandable way. It's a great addition to the discourse.
This masterful book gives the reader an easy lens to get familiar with the latest thought and regulatory agenda for supervising financial firms' conduct and culture.
Following to the global financial crash and numerous scandals such as LIBOR rigging and mis-selling, we have seen a shift from a consumer protection regime based on disclosure, towards a new focus on the root cause of misconduct: firms' culture. Culture Audit answers many questions that will be on the minds of firms' executives and compliance professionals, as well as regulators. Uniquely, this book addresses head-on the controversial topic of how people opt for different roles at different career stages, moving between regulatory agencies and commercial roles. This brings a fresh perspective so we can reflect in a new way on how regulators and firms interact.
A summary condensed from years of research, empirical experience, hundreds of real life talks and sharing by firms' executives, this book is a joy to read, for its clear setting out of theory and its practical action points. Dr Miles is a fascinating guide as he unlocks a door to the secrets of human minds, group dynamics and applying behavioural science to financial services. With an impressive group of colleagues, he addresses the big questions: What is culture and conduct? Why do regulators care about culture and conduct, as opposed to codified laws and regulations?, and more importantly: What shall we (the firms) do in response to the call? Arguing for a clear difference between conventional audit and culture assessment, it rightly also questions even whether the term culture audit is broad enough to yield the better questions that firms now need to ask themselves.
What a timely book! Plenty here to interest financial services regulation practitioners. It seems extraordinary that we are still talking about culture, more than twelve years after the global financial crisis exposed such huge problems in financial institutions. With great clarity, the authors have explained why these problems persist and if this book can help to improve culture then they've done a fine job.
Culture Audit contains a wealth of knowledge including a topical chapter on the behavioural science techniques that supervisors have adapted in recent years. A vast amount of research and analysis from leading industry thinkers has clearly gone on behind the scenes to enlighten the reader, yet the authors keep the tone straight-talking, lucidly unpacking complex and technical topics without compromising the quality of the analysis. For those whose interest is piqued, a list of further reading is provided in the appendix and there's a properly helpful glossary.
Culture Audit is very likely to achieve its aim of starting a wider conversation about conduct and culture across the regulated financial sector and beyond.
- A highly useful travelogue written by acclaimed experts in an easy-going manner that nevertheless serves to deepen awareness and understanding. After a survey of concepts and how conduct regulation is evolving, Culture Audit opens a window on using behavioural science to frame 'better questions' and introduces straightforwardly the benefits of some advanced technology. These elements weave together to explain where thought leadership has been and points to areas for further exploration like purpose, individual character development and the excitement that awaits firms who are not quite prepared for their first earnest discussion of culture with a regulator.
- Ted MacDonald, Technical Specialist, Wholesale Banking Supervision, UK Financial Conduct Authority
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