The recurrent call from the Financial Conduct Authority (FCA) for firms to put customers at the centre of their decision making, act in good faith, not knowingly cause foreseeable harm, aim for good outcomes, and provide fair value to their customers has – no doubt – been viewed by some in the industry as the regulator preaching to the converted.

After all, most firms would argue they wouldn’t have much in the way of a business if they weren’t focusing on these areas in some way. However, simply doing better than firms who are doing badly is not a particularly edifying position to be in either; hence why the regulator is pushing a cultural agenda to raise standards of conduct across the board.

With specific reference to historic poor customer outcomes and improving wavering trust in the sector, Consumer Duty has been positioned as the corrective cornerstone of the FCA’s three-year strategy to help accomplish this objective.

With this in mind, it is my intention to share some insights that the reader may – hopefully – find helpful in their ongoing journey towards compliance with the Duty, making outcome improvements where appropriate, and satisfying the cultural aspect should the regulator come knocking at their door.

Pragmatically, although the people elements of the Duty are an essential component for ongoing success from a compliance, performance and customer outcomes perspective, we need to acknowledge that training in itself, per se, isn’t a miracle cure that will solve every problem on the Duty radar.

Task-based elements and holistic challenges

We know that the Duty consists of what we can quantify as ‘task-based’ elements: updating/removing products, looking at T&Cs, making policy and process revisions etc. The objective of this piece, however, is to refresh the conversation and offer a different perspective with regards to the holistic elements: people and culture.

In the interests of sharing best practice, and to illustrate how forward-thinking firms are improving and evidencing these (often difficult to measure and quantify) elements, we need to look critically at current training practices, delivery methodologies, and recent regulatory feedback to explore where the disconnect between training and culture often lies.

Assessing your approach to employee training

We count ourselves extremely fortunate to work with several leading brands in the financial services sector – both large and small – who have all been early adopters of recognising that the default, industry standard methods for training their employees doesn’t entirely meet FCA requirements or ensure their employees are supported adequately to learn and retain the ever-increasing amount of regulatory information they are required to know in order to do their jobs compliantly and optimally.

When talking frankly with firms about their staff training regimes, most reach the inevitable conclusion that it is actually ‘bolted on’ and not ‘built in’ to their framework – and this concept offers us a valuable insight into why training often clashes with culture initiatives.

Now, this isn’t to say that all L&D, HR or compliance do a bad job of training their employees; on the contrary, we regularly see instances of training materials and initiatives that are exemplary in their respective fields.

In the interest of balance, however, we also see a lot of firms who interpret the requirement for providing mandatory compliance training, for example, as a tick-box exercise; something they have to do in order to satisfy regulatory requirements. In this respect, training is not necessarily seen as a value-add and fundamental component that is inherent to improving organisational culture.

In these instances, training is often delivered in a lowest cost-to-serve, generic, one-size-fits-all format and pays very little regard to what an individual employee demonstrably needs – whether new to a role or in a tenured position – to continually develop and improve their understanding and in-role application of required regulatory learnings. To compound matters, compliance, HR and L&D regularly tell us that it’s not unusual for them to have to repeatedly chase down employees to complete their training either.

Recent feedback from the FCA

The FCA is conscious of persistent problems with staff training too. ‘Inadequacy of training for staff’ was recently identified as a recurring weakness in the FCA’s summary of reasons for Final Notice action served to two firms in January 2023. With the regulator voicing concerns that inadequate training resulted in staff having insufficient knowledge of the relevant regulatory requirements to carry out their role.[1]

Identifying the shortcoming of firms’ training regimes has also been on the regulator’s radar over the last two years. 45% of final notices issued by the FCA in 2021 identified deficiencies in firms’ training programmes, highlighting a reliance on inadequate or a ‘one-size-fits-all’ approach to training employees, or a culture where employees did not complete mandatory training. ^[2]

In addition to this, 100% of final notices issued involved criticisms of firms’ policies and procedures, specifically highlighting how firms’ employees failed to comply with them, how firms failed to monitor compliance with these, and/or failed to take adequate action to address known instances of non-compliance.

These cases illustrate that – when firms fail to effectively embed compliance and risk management into everyday employee decision making – it inevitably increases the risk of firms suffering from symptomatic knock-on effects that can lead to retaliation behaviours from staff in the form of training disengagement, diminished unconscious performance (i.e., repeated errors, failure to follow policies and processes etc.), less concern being given about conduct and – ultimately – failures in their culture.

So, the concept of training being ‘bolted on’ often stems from firms having a lack of consistent, effective and quantifiable staff engagement strategies in place to continually reinforce and support what has been trained in the first place (or, in the direst of cases that the FCA highlight – not at all), which – inevitably – raises an important discussion around successful performance and effective cultural embedment programmes.

Confronting uncomfortable truths

We often uncover an uncomfortable truth when we ask a fairly blunt question: “do you know for certain that your staff are learning and retaining everything you require them to know to keep you compliant and operate optimally, and can you evidence this as a dynamic, real-time datapoint that empowers you to fix individual issues in a responsive and timely manner?”

As an aside, the real-time aspect is an important facet to acknowledge in the context of Consumer Duty. ‘Looking backwards’ is not an outcomes-focused way of working, and the concept of mitigating foreseeable consumer harm, for example, reflects this. If your training regime – and subsequent data you collect – only provides you with a snapshot of lagging indicators taken from single-point-in-time assessments relating to your people and their individual competency levels, then your defence will subsequently be weaker than those who use leading, real-time indicators.

Risk is dynamic; and change brings consequences for employees, employers and – ultimately – your customers. So, it makes sense that employee competency should be measured in a way that reflects this. To improve compliance, most forward-thinking organisations would attest that they would benefit significantly from the ability of knowing exactly what their people do and don’t know in a perpetual manner. As the old adage goes: “you can’t manage what you don’t measure”.

And, fundamentally, employers can’t reasonably expect their employees to put into practice what they have failed to learn and retain.

A continual exercise in people improvement and accountability

Circling back to the Duty at this point then, we know this is not a one-and-done exercise from the regulator’s perspective; it’s a process of continual improvement with no fixed end date – all underpinned by frank assessments of current and future risks with a requirement to demonstrate – through evidence – what firms are doing to improve employee conduct, culture and outcomes.

The regulator has outlined that firms must appreciate the importance of every nuanced customer or prospect interaction with their business. We see this explicitly referenced with regards to vulnerable customers, for example. They’ve also been clear that this is not just a simple tick-box compliance exercise either. Firms have been advised that they shouldn’t just focus their efforts on the ‘technical’, ‘letter-of-the-law’ changes that are required – they need to embrace the spirit of the reform.

To address the spirit, the onus is on individual accountability. Even though senior leaders and boards are the ones primarily on the hook under the Duty for driving and demonstrating change, the risks associated with it are inherently owned by everyone in the organisation; particularly the First Line of Defence, as this is where – in most cases – the majority of risk emerges and where it needs to be managed most.

A firm’s people – whether in-house or directly connected through an outsourced partnership – from advisors, agents, sales representatives, customer service operatives – are the people who are owning the risk on the frontline on a daily basis when interacting with customers and prospects. These are the enablers that firms need to engage, get early buy-in from, and continually support effectively to ensure that the Duty is adhered to and embedded within the way they operate.

With the introduction of a new Conduct Rule, for example, we can see that there is an increased level of expectation from the regulator with regards to individual accountability. And when the FCA talk about senior leadership driving change, the regulator is obviously looking for demonstrative practices that illustrate what they are doing differently – and what level of involvement and oversight they have – in shifting the cultural dial in their firm, where appropriate.

So, when it comes to training and embedding regulatory reform within culture, firms need to assess if they really are doing everything that they can to make it a reality and bring it to life within their business – as doing the same thing and hoping for a different result is the definition of madness. And failing to take the cultural piece seriously and engage the frontline, for example, could result in demonstrable failures and, ultimately, non-compliance.

We see this in the regulator’s recent multi-firm review of Duty implementation plans in January 2023. And – critically – let’s not forget that this evaluation consisted of reviewing the plans of larger ‘fixed’ firms, which have a dedicated supervision team at the FCA, and where the regulator believes they are substantially in scope of the Duty.

Areas of culture and people improvement illustrated that plans ‘lacked detail in the area of culture’, ‘lacked limited information about how it will be embedded’, ‘provided little explanation of tangible action the firm needs to take’, and ‘gave no evidence of any consideration of how far their firm’s current purpose, culture and values do, or do not, align with the Duty’ .[3]

Safeguarding initiatives for your people

There is a safeguarding issue that firms need to consider when it ultimately comes down to people and culture change. Employees are fallible and subject to conscious and unconscious actions, culture is reflected in the behaviours and mindsets of a firm’s employees, and competence is obviously variable for every employee and function. When you put these elements together, you get a sense of what the outcomes could be. You certainly would expect that firms that address the shortcomings in these areas will undoubtedly be looked on in a more favourable light by their customers – and the regulator – too.

In a changing regulatory landscape that is continually applying more and more pressure on staff to retain complex information (vulnerable customers, financial crime, due diligence etc.), firms need to be effectively engaged with employees at a macro level to understand and mitigate the associated risks. When you think that one of your most junior employees could make an unconscious error that leads to a serious breach, you realise just how fragile compliance is and how reliant firms are on the individual competence of their people.

There also needs to be a level of day-to-day pragmatism involved in training delivery models to support the culture permeation piece, and firms obviously need to balance staff training needs with productivity/regulatory demands – especially in a difficult economic climate. Yet, continuing to default to the same methodologies (for example, issuing 10-hours of one-size-fits-all mandated refresher training for employees that don’t necessarily require it or see the value in completing it) doesn’t make sound economic sense for the business or genuinely help to underpin cultural progression in most instances.

A more effective strategy, for example, would involve delivering training that identifies individual needs, operates in the flow of work on a continual basis, and gives the firm real-time Training and Competency MI to demonstrate that – where staff knowledge has been found to be below expectations – the firm can (and is) immediately engaging in reparative action.

The benefit of this approach also means that your training regime becomes ‘built in’ as part of your cultural progression and demonstration piece that the regulator so desperately wants to see. After all, what better way to show that you are committed to embedding awareness and understanding of critical regulatory themes than to conduct daily assessments of employee competence that are relevant to individual staff members and their specific requirements on a consistent basis.

To conclude, the firms we support see a trickle-down effect in cultural improvement from focusing on people competence, remodelling their training delivery practices, and enhancing their assessment methods.

Compliance gets a magnified presence in the business and access to metrics that genuinely empower them to measure what really matters; risk and internal audit get a forward-facing view of emerging people-based risk, operations and customer service teams reap the benefits though improved staff engagement and performance; the executive team get a cultural programme they can evidence and employees genuinely appreciate, every employee gets the individual support they need – when they need it most – to do their job optimally, and – crucially – customers and the business benefit.

It is perfectly possible to have a profit and customer-centric culture. In the interests of sharing best practice as firms continue on their Consumer Duty journey, we have a discussion paper that you can access [4] to learn more about how firms are re-modelling their training methodologies to authentically permeate their culture and operations.

Sources:

[1] https://www.fca.org.uk/news/news-stories/2023-fines

[2] https://www.allenovery.com/en-gb/global/news-and-insights/publications/fca-and-pra-enforcement-action-trends-from-2021-and-predictions-for-2022

[3] https://www.fca.org.uk/publications/multi-firm-reviews/consumer-duty-implementation-plans

[4] https://info.elephantsdontforget.com/consumer-duty-permeating-culture-and-operations-insight-guide