Need for financial firm 'cultural shift' at the centre of new regulatory era, says expert

Tracey McDermott, previously director of supervision at the regulator, said that the FCA had "had a sense of impatience" at the speed of change within firms in the aftermath of the 2008 financial crisis. However, firms would only be able to improve public trust in financial services by focussing on customers and market integrity, she said.

Financial regulation and enforcement expert Elena Elia of Pinsent Masons, the law firm behind Out-Law.com, said that Martin Wheatley's first public comments since the announcement that he was stepping down as FCA chief executive last week were understandably the focus of much of the media attention following the conference. However, presentations by the senior members of the FCA's executive committee gave "a clear indication of where the FCA's focus will be in the coming year", she said.

"Cultural change has been at the centre of many of the regulator's 'greatest hits' during Mr Wheatley's tenure including the new Senior Managers Regime (SMR) and Certification Regime; the Fair and Effective Markets Review and consumer focus agenda," she said. "The challenge now for firms is to make this a key organisational priority with the tone coming from the top and down throughout the organisation."

"It will be evident to anyone that attended the meeting that the FCA's panel members had a clear theme throughout their answers to questions from the floor, and that was its drive to enhance both regulation from the top and regulation from within as being foremost on its agenda," she said.

The FCA announced last week that Wheatley would stand down as chief executive with effect from 12 September, after the Treasury decided not to renew his contract. He will continue to perform an "advisory" role to the FCA board until 31 January 2016; with a particular emphasis on the implementation of the Fair and Effective Markets Review, which he co-chaired. Wheatley has headed the FCA since it took over the conduct and compliance functions of previous regulator the Financial Services Authority on 1 April 2013.

Wheatley spoke of his "disappointment" at leaving the regulator with "unfinished business", particularly in relation to the Fair and Effective Markets Review and the SMR. The Fair and Effective Markets Review is based around addressing recent market abuses and restoring public trust in the wholesale fixed income, currency and commodity markets; while the SMR will make it easier for regulators to hold named senior individuals within firms to account for failures in their areas of responsibility.

When asked what the most significant outstanding issue for the regulator was, Wheatley said that more had to be done to address the financial 'advice gap' for those with less complex advice needs. He said that the Retail Distribution Review (RDR), which introduced major changes to the retail investment market in 2012, had not "solved all of the problems" and that further work was needed to improve the consumer experience.

"The RDR has certainly removed product bias and the industry has stepped up to the professional standards which has been a huge success," he said in response to a question from Money Marketing.

"The gap is for the relatively smaller sized pots, as to whether – with all the liability that comes with giving advice – there is enough provision of service for those with simpler needs and less to invest. That's the gap which we are committed to doing some more work on," he said.

Board members also responded to questions from the floor about the increasingly large fines or firms, and the future of non-executive directors (NEDs) under the SMR, according to Elia.

"One member of the audience asked a question on the very large fines on Yorkshire Building Society in October 2014 which its members, rather than the management, were essentially footing the bill for," she said. "FCA enforcement director Georgina Philippou explained that had the FCA been able to take action against an individual at the firm, such as a senior manager, then they would have had to pay that fine. However, in this case the fine was against the firm and not the individuals as no individuals were found responsible for the misconduct."

"Ms Philippou acknowledged that cases against individuals are very challenging, but that the new SMR and the statements of responsibilities and responsibility maps will address this challenge. These will provide the FCA with the information they need to take action against the individuals involved by indicating to the regulator who was responsible, and enabled Ms Philippou to reassure the audience that enforcement action taken against the individual 'will be different in the future'," she said.

The last question of the meeting was about how unattractive the role of a NED in a regulated financial firm will become once the SMR comes into force, Elia said. Board chairs, senior independent risk directors and the chairs of a firm's risk, audit, remuneration and nominations committees, as well as managers responsible for the day to day running of the business, will be held individually accountable for their areas of responsibility under the new regime, along with any collective responsibility they may have as members of the board.

"In response, FCA chair John Griffith-Jones noted that the 'genesis' of the SMR was from the failures of certain banks during the financial crisis and the fact that no individuals were held to account," she said. "He focused on the new presumption of responsibility, which will undoubtedly be causing the most concern, but emphasised that this was 'just for the banks' as they caused the problems in the crisis."

"The regulator stated it has already given as clear guidance as it possibly can, without precedent being available. But Griffith-Jones sought to reassure the audience that so long as senior managers 'do their job and take their responsibilities seriously' then the FCA will not use this punitively; and will throughout use this with great care and skill and only where appropriate," she said.