The FCA is continuing to keep a close eye on the insurance market as it seeks to eliminate bad behaviour and practices, with organisations operating within the sector, beginning to take a more robust approach to dealing with issues relating to company culture.
Recent months have seen a number of speeches given by senior FCA executives around this issue, including director of supervision, Megan Butler. Speaking at an event organised by the Investment Association, she expressed that the biggest drivers of harm are business models and culture. Butler also gave pointers as to how the right culture should look, through incorporating aspects such as:
- A ‘speak-up’ culture where employees are encouraged to communicate openly, are not just following rules and to have different opinions, including about suspected misconduct.
- Good whistleblowing procedures.
- Taking diversity and inclusion seriously within businesses.
However, for risk managers looking to advise boards, a lot of the FCA’s guidance is not prescriptive and leaves firms to make their own interpretations. Butler comments:
“As a regulator, I’m not interested in prescribing what a good culture looks like, that’s the job of your leadership, your board, your business.”
It is certainly worthwhile though for firms to study the areas where regulatory attention is focused. So, examples include the way loyal customers are treated over new ones, as insurers in the motor and home sectors face censure for overcharging customers that remain with them.
An FCA report found that those who did not switch – around six million policyholders – were being overcharged by around £200 each a year, with the elderly and those on low incomes most affected.
Any business engaged in ‘sharp practice’ can expect action taken against them and firms are also expected to have clear strategies in place for dealing with so-called vulnerable customers to ensure they are treated fairly.
The spotlight has also turned on the way businesses treat their small business customers. In its 2018 FCA Discussion Paper on the topic, it was stressed that culture is the key root cause of major conduct failings, while it was also agreed that there could be “no single right culture, but instead factors that healthy cultures have in common.”
With FCA fines reaching record levels and the regulator showing it is not afraid to take enforcement action alarm bells should be ringing. The no ‘one size fits all’ approach does create challenges but, fixing problems that may currently exist and ensuring that every effort is being made to create the right culture going forward must be seen as imperative for all firms within financial services.
Take a look at our white paper around behavioural risk and how people’s behaviour and business culture relate to operational risk.