Since the 2008 financial crisis, the global financial industry has been on a mission to rebuild trust. In this article, LEO GRC’s Principal Consultant, Liz Hornby explores how the UK’s Financial Conduct Authority has made a shift from ‘Tone From Above’ to ‘Tone From Within’ and what this means for compliance learning programs in the financial sector.
The Journey So Far
Since the financial crisis, the global financial services industry has been on a mission to rebuild trust through demonstrating sustainable behavioral and cultural change. Changing behavior and embedding those changes within a corporate culture has, however, proved to be a tough challenge and that journey continues.
The journey so far can perhaps be broken into three stages.
Stage 1: The Tone From the Top
In the wake of the financial crisis, there was public disbelief that senior management and executives had not been held accountable. Existing regulatory tools proved to be blunt instruments, unable to pin personal responsibility and accountability on the most senior individuals—a prerequisite to personal fines and other sanctions.
In the UK, in response to the public outcry, the Parliamentary Commission on Banking Standards (PCBS) published a report called ‘Changing Banking for Good’. This in turn shaped the UK’s Senior Managers and Certification Regime (SMCR).
Central to the SMCR is the identification and regulatory approval of a small group of individuals at the top of a financial institution, termed Senior Managers. Key regulatory responsibilities are then formally allocated to each Senior Manager together with an enforceable statutory duty to take ‘reasonable steps’ to ensure that their firm complies.
Although the personal liability here is not strict or vicarious, its imposition has led to a major change in the way that firms are governed. Indeed, self-interest, in the form of self-preservation, has increased the volume of the tone from the top.
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Stage 2: The Tone From Above
However, there’s widespread recognition that the tone from the top is a starting point and not the end destination. More recently, the regulatory spotlight has begun to shine on those in management roles at all levels of a firm. Both on their own personal conduct and the way that they manage their teams.
In its November 2018 report “Banking Conduct & Culture, A Permanent Mindset Change”, The G30 refers to the ‘tone from above’. This report found:
“For permanent and ongoing change to occur, banks now need to focus on embedding culture awareness and stewardship at all levels of the organization, with a particular focus on middle management and frontline businesses. Only by making culture stewardship a permanent and integral part of how business is conducted will organizations avoid culture fatigue and backsliding.” (Executive Summary, page xi)
The tone from the top sets the parameters, expectations, and examples. The tone from above, however, is needed to reinforce and sustain them at a local level and ensure that controls, oversight, and culture are cascaded downward.
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Stage 3: The Tone From Within
The next stage in the journey, labeled recently as the ‘tone from within’ in a speech published by the Financial Conduct Authority (FCA), the UK conduct regulator, is not connected to management. Instead, it is very much focused on the personal accountability and engagement of individuals at every level of a firm.
The tone from within recognizes that controls and leadership can only get you so far: “the point of failure is not necessarily a failure of compliance […] it is human nature that is the real challenge.”
What Does This Mean for Compliance Learning Programs?
The current regulatory focus on the ‘tone from above’ and the ‘tone from within’ is shaping the approach taken by global compliance learning programs.
Whereas ‘traditional’ compliance learning may have focused primarily on knowledge transfer and the need to prevent a ‘failure of compliance’, current best practice is increasingly focused on ‘human nature’ and the factors that may drive poor behaviors in apparently ‘good’ people.
This focus opens up the possibility of a paradigm shift in the approach taken to compliance learning and the chance to adopt some of the best practices used successfully in other areas of learning.
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It’s worth noting three recent trends here:
1. Tailored Learning for Line Managers
The tone from above calls for the development of leadership and management skills, beyond what would usually be considered compliance learning. This is especially important when line managers are managing at a distance.
In addition, the tone from above can be explored through the creation of separate learner journeys in digital courses that provide tailored learning for line managers. This approach enables the line manager to interact with the scenarios in courses from the perspective of a line manager and to explore how their conduct can influence the conduct of their team.
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2. Making Knowledge Available On-Demand
One of the key messages taken from non-compliance learning is that mandatory learning downloads are not always the best way to deliver content, particularly technical information. Making learning available on-demand can be a very effective strategy. Learners are used to watching YouTube videos at the point of need—for everything from fixing a bathroom leak to writing a will.
Making knowledge available on demand is a big step for compliance learning, but a valuable one. It does, however, rely on the ability to embed behaviors that drive individual responsibility for learning and competence.
3. Spaced Learning
Spaced learning is another option for moving away from knowledge-crammed, digital one-stop compliance courses. Short ‘bites’ of spaced learning can effectively replace annual courses, keeping topics fresh and front of mind.
Want to learn more about behavioral change learning programs in financial services and other regulation-driven sectors? Get in touch with one of our governance, risk, and compliance experts.
Liz Hornby, Compliance Expert
Liz joined LEO GRC in 2010 and works as an in-house Subject Matter Expert. Since joining LEO GRC, Liz has completed a Masters Degree in International Business Ethics and Corporate Governance from the University of London and recently completed a PhD on whistleblowing in the UK banking industry.
After studying at Nottingham and Cambridge Universities, Liz qualified as a barrister and went on to work for both the London Stock Exchange and The Securities Association (a predecessor of the Financial Conduct Authority). She then moved into compliance, working for Nomura International plc and Goldman Sachs, before becoming a compliance consultant in 1994. As a consultant, she advised and worked with a broad range of financial services firms.
Liz was Deputy Chairman of the Compliance Forum Committee of the Chartered Institute for Securities and Investments (CISI) for many years and is a part-time lecturer in Corporate Governance and Ethics at the University of London.