Andrew Bailey, Deputy Governor of the Prudential Regulation Authority, has given a speech on culture in financial services.  In the speech, Mr Bailey re-emphasises that culture still is, and will remain, of the utmost importance to financial regulators.  Mr Bailey lists some of the factors which influence culture within a firm noting that the tone of a firm’s culture comes from the top: the structure of management and governance; remuneration and incentives; quality and effectiveness of risk management and a firm’s willingness to adopt and adhere to a good culture.

Mr Bailey also took the opportunity to remind the audience that culture has a major influence on the outcomes that matter to regulators and so whilst regulators will not prescribe a test for culture, they will require that systems and processes are put in place which are designed to generate a positive culture in a firm.  As an example, he stated that remuneration must be structured to ensure that individuals have ‘skin in the game’ (meaning that a meaningful amount of past remuneration is retained or deferred and for senior people is at risk should problems then emerge) and that risk management and internal audit functions in firms are effective and act to root out poor incentives and weak controls. 

Ultimately, Mr Bailey was of the view that firms and their management have to want good culture. He explained that while initiatives such as the Senior Managers and Certification Regime can assist with driving up standards and improving culture in firms, there is ‘no magic bullet to change culture.’