Getting to grips with the changes that have been brought in as a result of the Senior Managers and Certification Regime (SMCR) for all FCA regulated businesses is not easy.

In a series of six podcasts, we've brought together our employment and financial regulation experts to simplify this area and explain clearly what those working within legal, risk, compliance, HR and operations need to think about at each stage of the employment cycle when it comes to complying with the SMCR.

In this sixth episode, we cover the ever present question of culture.




Ian Mason: Hello and welcome to this podcast on SMCR and Culture. I am Ian Mason. I am a Partner heading up the Financial Services Regulatory Team and also joint financial services set leader in the UK.

We hope that you have managed to tune into the podcast series that we have run so far with members of Gowling WLG's Employment and Financial Services Regulatory teams.

In these podcasts we have discussed the issues that arise from a Senior Management SMCR perspective at each stage in the employment cycle and the purpose of this short podcast is for us to pull together previous podcasts and bring a close to the series.

Having said that there will be one more extra standalone one after this webinar focussing on investigations, which we decided to do given specific interest in this area.

So, I am joined today by two members of our Employment Labour and Equalities team, both of whom have plenty of experience in this area and who you may recognise from our earlier podcasts.

We have Simon Stephen, a director and Jonathan Chamberlain, a partner in the team.

We have covered a number of different topics. Jonathan - what would you flag as the key point to take from them?

Jonathan Chamberlain: Well we really have gone through almost everything in this. We have gone from recruitment through to whistleblowing and well-being and the key stand out point for me in all of this, the golden thread that brings it all together is the importance of HR to be involved in the SMCR process from the outset. It is not just something for compliance or legal to be responsible for and HR's role is absolutely pivotal and yes, SMCR is complex and it is linked to a lot more complex financial services regulation.

The SMCR is only a relatively small part of the rule book, so of course you need to have that technical expertise around the rules themselves. However, as the rules relate to people, a firm's staff, its lifeblood, you have to have a human resources expertise as well and it is why Ian, of course, you and your team work so closely with Simon and me and our team here and just developing that if I may, as Simon has said before, the jigsaw has many pieces across the whole firm.

The best illustration I think is by way of an example. Take regulatory references, it is HR that will run the reference process, not compliance or legal, but they will need input both from compliance and the relevant managers in the business. If compliance runs the regulatory process, how does that link in then with the HR process? How does it link in with the disciplinary process and the conduct rule breach reporting process, to ensure that information is consistent and the same applies to whistleblowing, well I could go on, but we just have to re-run the whole podcast series.

The key thing is having a joined up framework. If we get into turf wars over ownership of this, then we go into a lack of teamwork and that will be distinctively unhelpful to coin the phrase.

Ian: Thanks Jonathan. Simon, coming to you then I will ask you the same question. What would you flag as the key learning point?

Simon Stephen: Well thanks Ian, Jonathan has helpfully pinched my jigsaw line, so I will take a further step back and I think that the continued implementation and the maintenance of the framework that Jonathan has mentioned has to be based around an understanding of the overall purpose of the SMCR regime and particularly around accountability and culture.

As with most regulatory regimes, this will not work unless there is accountability of course, but that will not come unless there is a clear understanding by all staff of the regime. This includes the senior manager role. What that entails and, of course, what it does not. The conduct rules, what being asserted by employee means and of course the implications of any breaches of any of the rules. That then needs to be coupled up if you like, with the focus on culture and it also occurs to me as I say this that the Senior Manager role needs to be at the front and centre of everything we have talked about. All these aspects that we have covered in the different podcasts and as Jonathan highlighted, HR will of course have a pivotal role in supporting them.

Ian: Thanks Simon. You mention culture there which is something that has come up a lot in this series. Jonathan, I know you are a big culture fan, but can you summarise what we mean by culture in this context?

Jonathan: No, well I will try, of course the FCA is very vocal on culture and culture change and there are essays and books and think pieces about what is culture and it is a very easy thing to say, but it is pretty difficult to identify it and then achieve it. Once you have a positive culture and many of you will have got new pets over lockdown, it is like having a new dog in the house, I mean it is wonderful. Unites the family, brings everyone together. Huge and positive and it needs to be constantly looked after and in the context that we are talking about here, perhaps a puppy is not the best analogy and I think it is better to talk around accountability, responsibility, risk management, perhaps especially conduct risk. A positive culture would be defined by the positive promotion of accountability and responsibility and the positive approach to risk management and you will be able to identify it in how behaviours are manifest. How do people do their job? It is the "how" combined with the "what" if you like and as part of this a firm's culture will be defined by looking at what its values and goals are and how it goes about delivering them and it will also be defined by the make-up of the workforce, the conduct of the employees that work there, what they do, how they do it, how they behave to each other.

So, culture is really hard to define because in one sense it is everything and an overly mechanistic approach is not necessarily helpful. You know what it is when you see it, when you feel it, when you experience it.

From the SMCR point of view, the obvious role of Senior Managers is in making sure the values and the goals are clear and then living them. Leading from the front is key.

Ian: Thanks Jonathan. So how far does this go in relation to SMCR and the role of HR?

Simon: I will take this one Jonathan if that is alright. In terms of the SMCR there is an ever widening aspect to this. At the moment we are seeing an increased focus on ESG aspects and overall governance to include for example the firm's approach to climate change and to issues such as modern slavery. HR's role may be limited in these, but it does have a real role to play in issues such as non-financial misconduct, remuneration and as far as diversity and inclusion and of course in leadership, coaching and mentoring.

How a firm deals with non-financial misconduct including that by high performers or senior staff such as sexual harassment or bullying is rightly seen as a good litmus test of culture internally, which can then in turn relate to behaviour and risks to customers and consumers.

That then becomes a fine balance of demonstrating the consequences of poor misconduct, but also highlighting the consequences of good conduct and also how a firm approaches remuneration and how that is linked to conduct and the other aspects of good culture, such as speaking up and innovation can also drive and change behaviour.

For example, if we impact variable pay or promotion for those who have not met the values, but we increase it for those who have, that is a good story there, but that in itself is a separate topic, which we no doubt will cover in a podcast in due course, but how a firm approaches diversity and inclusion and both internally and externally is also an ever increasing focus of the FCA and rightly so. They have specifically stated that one dimension to diversity is the importance of new thinking and the new approach of the issues that that brings. This then links us back to the issue of physiological safety and I talked about it in previous whistleblowing podcasts and the improved innovation that that can bring.

There are fundamental aspects of culture to ensure that it is diverse and inclusive and also just finally add to this that learning and development will also underpin any cultural initiative and will therefore underpin the SMCR as a whole. I see HR as having another important role there in feeding into that continuous learning loop, helping others do so as well and then building that into firmwide training, leadership and then cultural programmes as well.

Ian: Well Simon and Jonathan, thank you both very much. That has been really very interesting, but I think that is all we have got time for on this podcast. There is one final podcast to come in this series, which I hope has been of use and interest. Please do get in touch with the Team if you have any follow up queries and thanks to everyone for listening.

Missed the previous episodes? Listen to:

  • Episode 1 where we explore all things recruitment
  • Episode 2 where we look at issues arising during employment
  • Episode 3 where we discuss the topical area of whistleblowing
  • Episode 4 where we explore issues arising on termination of employment
  • Episode 5 where we look at the importance of well-being to create a healthy workplace culture

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