When Jonathan Davidson arrived at the FCA in 2016, it was facing a huge challenge in delivering effective supervision. With more than 60,000 firms to supervise and thousands of pages of rules and guidance, the approach of checking compliance had obviously become impractical. Jonathan concluded that conduct issues were created either by the business model and strategy of the firms or their culture. Working with his co-head of supervision he set about a transformation in the approach to Supervision.
By analysing and engaging with firms on their business strategy, they shifted focus to the areas where the business models created a high risk of conduct issues. For the FCA this created much greater efficiency and effectiveness of supervision. For firms it meant much greater clarity on what they needed to do which was communicated by letters to all firms with similar business models setting out risks and priorities.
Turning to culture, Jonathan realised that it was important to bring rigour and analysis to what can otherwise be seen as a soft concept. Measuring culture – the mindsets and behaviours typical of an organisation – is very hard to do. They focused instead on the measurable things that firms do to shape and drive their cultures – recognising that this also provides a sense of where the culture is going and whether the firm and its leaders are taking it seriously. The FCA’s approach to assessing the risks presented by each firm was based on evaluation of four drivers: the Purpose of the Firm; the Senior Leadership and the tone set from the top; the People Policies which create incentives for different types of behaviour; and the Governance of the firm – how key decisions get made. For Firms and their Boards this provided clarity on the FCA’s priorities – and more importantly, provided a framework for the levers they could lead their own transition to healthy and high performing cultures.