FCA chief executive Andrew Bailey has made a speech on the organisations determination to change the culture of the financial services sector. Explaining the role of the FCA in the transformation, Bailey notes: “Culture is not naturally pursued by a regulator like the FCA by making rules. We would not achieve much by making a rule which said that all firms should have a good culture. I want to be clear however, and I will come back to this point, that culture in firms is influenced by the rules we make and the incentives they create, so there is a very important role for our rules, but it is not a direct prescribing of culture.”

Bailey pointed to the many instances of misconduct, and society’s expectations that more should be done to pre-empt and anticipate poor conduct. He also rounded on responsibility, saying that since Milton Friedman discussions of the "social responsibilities of business" have been selective and that Friedman sought external guides from society, whereas business itself is part of society and might contribute. “I think this lack of connection between firms and societal duties in terms of the responsibilities of firms is where the culture debate and practice subsequently went wrong.” Bailey added.

Looking forward, he noted: “In our world, I would single out two developments of recent years as important for creating the incentives for good culture, namely the advent of the Senior Managers Regime for banks, which will shortly be implemented for other financial services firms and measures to govern the payment of remuneration to senior managers of banks, and the introduction of remuneration regulation for banks.”

Although particularly speaking of the financial services sector, Bailey’s summary could be applied to many industries, with his explanation that “it would be at best incomplete to characterise the drivers of culture as being the activity of stopping bad things from happening, important though that is. As essays in our volume indicate, culture is about encouraging and incentivising good things, positive ethical customs to use Friedman’s phrase”.

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