# Creating a culture of compliance
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2016-05-16
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Understanding the Senior Managers Regime in UK-Based
Meta Description: Explore the impact of the SMR on ethical and conduct standards in financial institutions, and the importance of embedding compliant cultures from the top down.
URL: https://financedigest.com/creating-a-culture-of-compliancehtml

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By **Neil Herbert**, Director, [HRComply](http://www.hrcomply.co.uk/)

_What is culture? The Oxford English Dictionary defines it as -The philosophy, practices, and attitudes of an institution, business, or other organization. Generally culture is something that develops naturally over long periods of time shaped as it is by so many factors – societal, demographic, political, social economic etc. It is certainly a very long period of [time](https://www.financedigest.com/time-to-act-as-cybercriminals-hot-on-the-heels-of-finance-sector.html "Time to act as cybercriminals hot on the heels of finance sector") since the FCA started banging on about culture within financial services institutions – and their expectations in this regard. The FCA’s message has been as unequivocal as it has been longstanding – that it is looking to [hold senior management accountable](https://www.financedigest.com/is-your-accounting-software-holding-you-hostage.html "Is your accounting software holding you hostage?") for the embedding of compliant cultures and high ethical and conduct standards. To judge by recent increases in enforcement levels relating to conduct – one could be forgiven for thinking that this has fallen largely on deaf ears._

_The result? The Senior Managers Regime – which aims to lead the reluctant proverbial horse to the water and then make it drink! New [rules that hold senior UK-based managers of banks liable for](https://www.financedigest.com/bank-of-england-publishes-rules-for-energy-firms-liquidity-tool.html "Bank of England publishes rules for energy firms’ liquidity tool") their actions are deemed a necessity economically, socially and politically. It is not entirely to the industry’s [credit that they have been the only ones group not](https://www.financedigest.com/bnp-paribas-buys-majority-stake-in-dutch-firm-dynamic-credit-group.html "BNP Paribas buys majority stake in Dutch firm Dynamic Credit Group") to get this entirely. The regime, which finally kicked in o_ _n March_ _7, doesn’t just put a financial [firm’s](https://www.financedigest.com/how-finance-firms-can-unify-two-data-approaches-to-improve-both-compliance-and-security.html "How finance firms can unify two data approaches to improve both compliance and security") high-up employees in the firing line, but its culture too. For without an appropriate embedded culture led from above the FCA argues – no [institution can expect](https://www.financedigest.com/theres-a-fine-line-between-relinquishing-control-and-accountability-financial-institutions-must-balance-both-to-successfully-cloudify-operations-and-meet-customer-expectations.html "There’s a fine line between relinquishing control and accountability. Financial institutions must balance both to successfully cloudify operations and meet customer expectations") to achieve the standards and improvements that have so long been required. It is widely accepted that [cultural shift is the most important](https://www.financedigest.com/tissue-cultured-date-palm-market-pegged-at-us-4-5-bn-value-pool-in-2027-import-export-activities-take-a-downturn-amid-coronavirus-outbreak-future-market-insights.html "Tissue Cultured Date Palm Market Pegged at US$ 4.5 Bn Value Pool in 2027; Import & Export Activities Take a Downturn Amid Coronavirus Outbreak: Future Market Insights") response to regulatory creep._

The Senior Managers Regime is designed to control irresponsible boards, bosses and risk-takers. All managers or those with director-level oversight for a UK-based part of any banking business will be captured and their sphere of influence defined, assigned and recorded. If a captured financial institution breaches regulation, the accountable person could face financial penalties or a ban from the [industry](https://www.financedigest.com/global-crises-that-need-the-finance-industry.html "Global Crises That Need The Finance Industry"). The most significant shift here is that the accountable person effectively [shares](https://www.financedigest.com/top-5-players-to-account-for-45-of-global-consumer-appliance-coatings-market-share-through-2031.html "Top 5 Players to Account for 45% of Global Consumer Appliance Coatings Market Share Through 2031") accountability with those he or she oversees. Their actions create consequences for him and he must be able to prove he took all ‘reasonable steps ‘to ensure that their actions were compliant or that breaches should reasonably have been avoided. Such positions of responsibility suddenly seem less appealing! Indeed there is already a [looming recruitment crisis for bank boards as the downsides and risks](https://www.financedigest.com/analysis-rbc-tightens-grip-at-home-with-10-billion-hsbc-canada-bid-regulatory-risks-loom.html "Analysis-RBC tightens grip at home with billion HSBC Canada bid, regulatory risks loom") of such roles – along with the increased retention and control/clawback provisions for remuneration – make board roles more difficult to fill. The Treasury has [backed down slightly in the face of legal advice and consequently jail time hail time looks less likely when it transferred the burden of proof for these rules from the bankers to the watchdogs](https://www.financedigest.com/eu-watchdog-backs-esg-quality-label-for-market-benchmarks.html "EU watchdog backs ESG ‘quality label’ for market benchmarks"). Further evidence for this relaxing of the new standards came when it emerged that the Financial Conduct Authority had dropped a review [into banking culture](https://www.financedigest.com/stellantis-reshuffles-european-financing-operations-through-new-jvs-with-banks.html "Stellantis reshuffles European financing operations through new JVs with banks").

However the spirit of the new regime remains undiminished according to Tracey McDermott the acting head of the FCA and the SMR will force change in business practices. The biggest changes will be that [Managers and firms will need](https://www.financedigest.com/looking-to-buy-a-rental-property-heres-why-you-need-a-property-manager.html "Looking to Buy a Rental Property? Here’s Why You Need a Property Manager") to cover their tracks and maintain scrupulous records and audit trails. IT system and MI spend along with legal, compliance and [risk management](https://www.financedigest.com/extended-reality-applications-in-risk-management.html "Extended Reality Applications in Risk Management") budgets are set to rocket. The firm must [educate and equip managers](https://www.financedigest.com/education-security-in-2022-hybrid-cloud-device-management-drives-it-challenges.html "Education Security in 2022: Hybrid-Cloud, Device Management Drives IT Challenges") and staff alike to be competent and to understand what is required from an ethical and conduct point of view. They must then put in place the mechanisms to [achieve this and the oversight infrastructure](https://www.financedigest.com/achieving-a-smooth-transition-from-legacy-infrastructure-to-hybrid-cloud.html "Achieving a Smooth Transition from Legacy Infrastructure to Hybrid Cloud") to monitor and record its delivery.

Many banks [see this as unnecessary bureaucracy and intrusive regulation that slows down decision making – others see this as a necessary cultural and systemic](https://www.financedigest.com/bae-systems-sees-big-opportunity-in-space-after-uk-satellite-bolt-on.html "BAE Systems sees big opportunity in space after UK satellite bolt-on") shift. Either way – the impetus for such deep cultural change must now be driven from the very top of [every organisation and be thoroughly embedded changing attitudes and processes at the same time](https://www.financedigest.com/how-to-nail-your-banking-audition-every-time.html "How to nail your banking audition every time") through education, policy and process restructuring.

Most ominously, regulators have signalled their willingness to catch [managers by using the fuzzy notion of cultural deficiency to pin responsibility even where the company](https://www.financedigest.com/big-companies-manage-to-pass-on-soaring-costs-to-cash-strapped-consumers.html "Big companies manage to pass on soaring costs to cash-strapped consumers") org chart suggests there isn’t any. Lawyers accept that this is a grey area but one that banks would be foolish to ignore. Those that [put profit above client interest](https://www.financedigest.com/abn-amros-q3-profit-jumps-as-interest-income-recovers.html "ABN Amro’s Q3 profit jumps as interest income recovers") are courting disaster those that don’t must be able to demonstrate that fact.

There will be other shifts. The dilemma facing directors over whether to [put regulators’](https://www.financedigest.com/cash-crunch-for-british-funds-puts-regulators-under-pensions-lens.html "Cash crunch for British funds puts regulators under pensions lens") or shareholders’ interests first will intensify. Watchdogs will be much more tenacious in checking that a bank’s culture is up to scratch, all staff down to the most junior will be scrutinized and institutions will need to pay attention to their T&C and [development strategies](https://www.financedigest.com/closing-the-door-before-the-horse-bolts-developing-a-proactive-network-detection-and-response-ndr-strategy.html "Closing the door before the horse bolts: Developing a proactive network detection and response (NDR) strategy ") to meaning institutions may have to do even more to ensure that their junior talent is on board, competent and happy.

In summary a cultural revolution, albeit a slow-moving one and one that’s probably needed, is gathering steam. It’s also an unstoppable one – as the FCA/PRA press on with consultation with to the rest of the industry – notably the wider wholesale and investment/asset management sectors – to broaden the [regime’s application to cover the entire industry](https://www.financedigest.com/automotive-radar-market-key-players-industry-overview-applications-and-analysis-2026.html "Automotive Radar Market Key Players, Industry Overview, Applications and Analysis 2026"). Many smaller firms in these [sectors will](https://www.financedigest.com/the-importance-of-role-models-and-policy-in-encouraging-more-women-to-pursue-careers-in-the-finance-sector.html "The importance of role models and policy in encouraging more women to pursue careers in the finance sector") find cultural change of this magnitude even harder and financially damaging to achieve.


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