Speaking at the recent City Week conference in London, Andrew Bailey, who moves from the headship of the UK's Prudential Regulation Authority to take over the Financial Conduct Authority at the start of July, aired his opinions about that indefinable compliance concept, 'culture.'

In a speech redolent of premier David Cameron's first 'Big Society' speech of 2010, which also espoused a vague concept that nobody could define, Bailey tried to enthuse the masses with a call for firms to have better 'cultures.' He began: "For the avoidance of doubt I want to start with what I intend as an unambiguous statement, namely that the culture of firms and the people that make them up - and of course therefore the culture of industries insofar as it can be generalised – is of the utmost importance to financial regulators."

Underpinnings of culture

Admitting that he did not have his own definition of 'culture' with the words "there is a reasonable debate about what is culture," and "we cannot write a regulatory rule that settles culture," Bailey listed four contributory forces from which he thought it sprang. These were:

• the stance and effectiveness of management and governance, including 'the tone from the top';
• the structure of remuneration and the incentives it creates;
• the quality and effectiveness of risk management; and
• the willingness of people throughout the organisation to adhere to the 'tone' enthusiastically.

He thought that he could 'tackle' firms on all these contributory elements and felt sure that no cases of a major prudential failings or 'conduct failing' ('conduct' being another ambiguous concept with which every compliance conference grapples). However, he waxed meek for a second by claiming that "as regulators, we are not able, and should not try, to determine the culture of firms," a statement that must have left the audience wondering why regulators (whose job it is to impose ways of doing things on others) should be interested in culture at all. He condoned the aim of the Senior Managers' and Certification Regime to ensure that "a meaningful amount of past remuneration is retained or deferred and for senior peope is at risk should problems emerge." He stated the corollary of this: that "responsibility is the central plank of the new regime...and that includes a responsibility for forming and implementing a positive culture throughout the organisation." He rounded off his views on senior management accountability, which he described as a good 'hook' that helps firms build up good cultures, with the most interesting point: "it is not the job of regulators to enforce culture and to change culture [but] if we have to step in, and occasionally we do, the overriding conclusion is that management has failed."

Famous last words

Condemning the famous 'greed is good' statement of Gordon Gekko's from the 1980s, Bailey ended with a rather ominous suggestion that he expected a large number of financial firms to be having to change their cultures quickly very soon: "A change of culture is possible and...a lot can be achieved in a short space of time where there is commitment."