Supervisors on Supervision

“While there is no one-size-fits-all culture, a healthy culture shares common elements. 

Employees want to work for organisations whose purpose resonates with their own individual sense of purpose. Consumers want to be able to trust that firms are not only looking after their money, but also looking after their employees and other stakeholders, treating them fairly while engaging in ethical business practices. Shareholders want to invest in firms that can make them money by doing good and by adding value to society.”

“In 2019, [the FCA] set up a working group to explore the concept of purpose and consider the business case for purposeful cultures. The working group was made up of representatives from firms and professional bodies, as well as academics and subject matter experts.

When we launched our Transforming Culture initiative, it was rare to hear the concept of ‘purposeful cultures’ discussed in the same sentence as financial services. But, during the time since, there has been a huge increase in attention to the topic and, now, it is rare not to hear it discussed when considering the elements needed to drive a healthy culture. 

The purpose of a firm sits at the heart of its business model, strategy and culture. There can be a tendency to determine business model and strategy first, and to then try and retro-fit purpose. But this is the wrong way around. Organisations need to ask themselves what their purpose is, and then determine a business model and strategy that aligns with it. 

At the FCA, we describe purpose as ‘what a firm is trying to achieve — the definition of what constitutes success’. A firm’s purpose is its own responsibility, and should not be prescribed by a regulator, but we want firms to recognise its importance in driving behaviour and the culture of an organisation. Firms and leaders who don’t recognise the importance of purpose may be more likely to drive behaviours in their organisations that could lead to misconduct. 

So, purpose is one of four drivers of culture upon which we focus in our supervision of firms, alongside leadership, approach to people, and governance. To understand culture, we assess the effectiveness of these four drivers in reducing the potential for harm that could arise from a firm’s business model or strategy. When considering the effectiveness of purpose, we look at: how a firm describes its aims through its narratives; how these are understood by staff and whether they are aligned with good outcomes; how purpose is reinforced, communicated and demonstrated by leaders; and the extent to which a firm acts as a good market participant. 

If a firm’s purpose and associated business model, strategy or activity is contributing to — or exacerbating — the risk of potential harm, then firms can expect increased supervisory scrutiny.”