Why Culture Is a Regulatory Question

The FCA’s view is that most serious conduct failings have cultural roots: incentives that reward the wrong behaviour, managers who discourage challenge, or a tolerance of small breaches that grows into large ones. The Senior Managers and Certification Regime was designed partly to change culture by making individual accountability clear. The Consumer Duty reinforces this by asking whether the firm’s culture and behaviour consistently deliver good outcomes for customers.

For boards, this means culture can’t be left to HR or a values campaign. Supervisors will ask how the board understands the firm’s culture, what evidence it relies on and what it has done when the evidence was uncomfortable. The chief executive and other Senior Managers are expected to set the tone, and the board is expected to oversee whether that tone reaches the front line. SMF Capital’s article on the Consumer Duty and the SMF framework explains where that accountability sits.

The Problem With Measuring Culture

Culture resists simple measurement. Engagement scores can be high in a firm where people are comfortable but don’t challenge. Low complaint numbers can reflect good service or a process that discourages complaints. A single metric rarely tells the truth. The answer is to look at a range of signals, compare them over time and across teams, and pay most attention to where they disagree.

The Signals That Matter

Speaking Up

How often people raise concerns, through whistleblowing channels, compliance or their managers, and what happens when they do. Very low numbers can be as worrying as a sudden rise. Repeat themes from the same area are especially telling.

Conduct Breaches and Disciplinary Outcomes

The number and nature of breaches of the Conduct Rules, and whether outcomes are consistent regardless of seniority or revenue. If high performers are treated more leniently, staff notice quickly.

Customer Outcomes

Complaints and their root causes, Financial Ombudsman outcomes, product value assessments and the treatment of vulnerable customers. Culture shows up most clearly in how customers are treated when nobody senior is watching.

Staff Surveys and Exit Interviews

Survey questions on whether people feel safe to challenge, whether they’d recommend the firm’s products to family, and whether they see bad behaviour tolerated are more useful than general engagement scores. Exit interviews often reveal what current staff won’t say.

Incentives and Remuneration

What the firm actually rewards. If bonuses depend heavily on sales volumes, the firm’s stated values will struggle to compete. Remuneration committees should look at whether risk and conduct adjustments are applied in practice, not just on paper.

Control Function Standing

Whether compliance, risk and internal audit are listened to. Useful signals include how often their findings are overdue, whether their budgets are protected, and whether their leaders have direct access to the board. The standing of the compliance oversight function and the chief risk officer often reflects the culture more accurately than any survey.

Behaviour of Senior Leaders

How the executive responds to bad news, whether they admit mistakes and whether they challenge each other in front of the board. Board members see this directly and should trust what they see.

Turning Signals Into Insight

Bring the Data Together

Many firms collect culture signals in different places: HR holds survey results, compliance holds breach data, operations holds complaints. A simple culture dashboard that brings them together, broken down by business area, lets the board see patterns no single source reveals.

Look for Disagreement

The most useful insight comes from contradictions. A team with excellent engagement scores but rising complaints, or strong sales and unusually few concerns raised, deserves a closer look.

Go and See

Data only goes so far. Non-executives who visit teams, sit in on customer calls or talk to junior staff without senior managers present learn things no dashboard will show. Many boards now build this into their annual programme.

Track Over Time

Culture changes slowly, and a single snapshot can mislead. Trends over several years, and changes after significant events such as a restructure, a new leader or an acquisition, are more revealing.

Acting on What the Board Finds

Measuring culture only matters if the board acts. That might mean challenging an incentive scheme, supporting a control function that isn’t being heard, changing a leader in an area with persistent problems, or commissioning an independent review. Boards should record what they found and what they did, so they can show supervisors that culture oversight is real.

The UK Corporate Governance Code asks boards to assess and monitor culture. Even for regulated firms outside its formal scope, its principles offer a useful framework.

Culture in Smaller Firms

Smaller firms don’t need elaborate dashboards. With a handful of teams, the board can often see culture directly. The risk is different: in a founder-led firm, the culture is usually the founder’s, and there may be nobody independent enough to say when it’s drifting. An independent non-executive, a compliance officer with direct board access, and simple regular questions about concerns raised and customer complaints can give a small board most of what it needs.

Common Mistakes

• Relying on engagement scores. Happy staff and a healthy conduct culture aren’t the same thing.
• Delegating culture to HR. Culture is a board and Senior Manager responsibility.
• Ignoring the control functions. Their experience of being heard, or not, is one of the best culture signals available.
• Not looking below the top. Culture at the front line can be very different from culture in the boardroom.
• Treating culture as a project. Culture needs continuous oversight, not a one-off programme.

Culture and Senior Appointments

Every senior appointment shapes culture. A chief executive who welcomes challenge, a chief risk officer with the standing to be heard, or a chair who insists on seeing the front line can change a firm’s culture more than any programme. When firms recruit Senior Managers, they should test how candidates have influenced culture before: how they’ve responded to bad news, handled a high performer who broke the rules, or supported a team member who raised a concern. For board and C-suite appointments at larger regulated firms, Exec Capital’s FCA-regulated executive search practice builds these questions into its assessments.

A Board Checklist

• Does the board receive a combined view of culture signals, broken down by business area?
• Does it look for contradictions between signals?
• Do non-executives spend time with front-line teams?
• Are incentives reviewed for their effect on behaviour?
• Do the control functions have genuine standing and direct board access?
• Are conduct outcomes consistent regardless of seniority?
• Does the board record what it found and what it did?

The Bottom Line

Culture can’t be measured with a single number, but it can be understood. Boards that bring together a range of signals, look for contradictions, see the front line for themselves and act on what they find are in a far stronger position with their supervisors, and far more likely to spot problems early. For more on how accountability for culture is allocated, see SMF Capital’s guide to Senior Manager Functions.