SEC Chairman Jay Clayton today issued a statement highlighting the importance of cybersecurity to the agency and market participants, and detailing the agency’s approach to cybersecurity as an organization and as a regulatory body.

The statement is part of an ongoing assessment of the SEC’s cybersecurity risk profile that Chairman Clayton initiated upon taking office in May. Components of this initiative have included the creation of a senior-level cybersecurity working group to coordinate information sharing, risk monitoring, and incident response efforts throughout the agency.   The statement provides an overview of the Commission’s collection and use of data and discusses key cyber risks faced by the agency, including a 2016 intrusion of the Commission’s EDGAR test filing system. In August 2017, the Commission learned that an incident previously detected in 2016 may have provided the basis for illicit gain through trading.  Specifically, a software vulnerability in the test filing component of the Commission’s EDGAR system, which was patched promptly after discovery, was exploited and resulted in access to nonpublic information. It is believed the intrusion did not result in unauthorized access to personally identifiable information, jeopardize the operations of the Commission, or result in systemic risk. An internal investigation was commenced immediately at the direction of the Chairman.  

“Cybersecurity is critical to the operations of our markets and the risks are significant and, in many cases, systemic,” said Chairman Clayton. “We must be vigilant. We also must recognize—in both the public and private sectors, including the SEC—that there will be intrusions, and that a key component of cyber risk management is resilience and recovery.”

The statement also outlines the management of internal cybersecurity risks, including the incorporation of cybersecurity considerations in disclosure-based and supervisory efforts, coordination with other government entities, and the enforcement of the federal securities laws against cyber threat actors and market participants that do not meet their disclosure obligations.

Chairman Clayton writes, “By promoting effective cybersecurity practices in connection with both the Commission’s internal operations and its external regulatory oversight efforts, it is our objective to contribute substantively to a financial market system that recognizes and addresses cybersecurity risks and, in circumstances in which these risks materialize, exhibits strong mitigation and resiliency.”

The Securities and Exchange Commission today announced that Thomas J. Butler has been named an Associate Regional Director for the Investment Adviser and Investment Company examination program in the agency's New York Regional Office.  Mr. Butler is leaving his current position as Director of the SEC's Office of Credit Ratings (OCR), a position he has held since June 2012.

"I am delighted to welcome Tom to the team," said Pete Driscoll, Acting Director of the Office of Compliance Inspections and Examinations. "The New York region is responsible for more than 2,800 registered investment advisers with more than $18 trillion in assets under management and over 200 investment company complexes. Tom's significant industry experience and leadership prior to and at the SEC will be invaluable to the experienced and dedicated staff in the New York examination program."

Prior to his 2012 appointment as the inaugural Director of OCR, Mr. Butler was a Managing Director at Morgan Stanley Smith Barney and Citigroup, held senior financial advisory and structuring roles at UBS and Babcock & Brown, and worked at two major law firms. Mr. Butler received his undergraduate degree from Rutgers College and his law degree from Rutgers School of Law at Newark.

Jessica Kane, Director of the SEC's Office of Municipal Securities (OMS), has been appointed to serve as Acting Director of OCR on an interim basis following Mr. Butler's departure.  In turn, Rebecca Olsen, Deputy Director of OMS, will serve as Acting Director of that office while Ms. Kane is assigned to OCR.

The Securities and Exchange Commission today charged the former CEO of a Silicon Valley-based fiber optics company with insider trading in company stock by using secret brokerage accounts held in the names of his wife and brother.

The SEC alleges that Peter C. Chang, who also was the founder and chairman of the board at Alliance Fiber Optic Products, generated more than $2 million in illicit profits and losses avoided by trading on nonpublic information and tipping his brother ahead of two negative earnings announcements and the company’s merger.  

According to the SEC’s complaint, Chang was the company’s largest shareholder and required under the federal securities laws to disclose his ownership of company securities as an officer and director.  Chang allegedly traded company shares secretly in the family member accounts, often times from his work computer after attending board meetings where confidential information was discussed.   He also allegedly tipped his brother in Taiwan with nonpublic information to trade ahead of the earnings announcements in 2015 and an announcement in 2016 that the company would be acquired via tender offer by Corning.

Chang allegedly tried to hide his control over one of the accounts by posing as his brother in communications with one of the brokerage firms, and he allegedly obscured his relationship with his wife in response to a market surveillance inquiry by the Financial Industry Regulatory Authority. 

“As alleged in our complaint, Chang betrayed his company and its shareholders for his personal gain by trading in clandestine accounts right after learning extremely confidential information in board meetings,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. 

The SEC’s complaint charges Chang with violating Sections 10(b), 14(e), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 14e-3, and 16a-3.  The complaint seeks disgorgement with prejudgment interest plus a penalty, permanent injunction, and officer-and-director bar.

In a separate action by the U.S. Attorney’s Office for the Northern District of California, criminal charges were unsealed against Chang.

The SEC’s investigation, which is continuing, has been conducted by Serafima Krikunova and supervised by Jennifer J. Lee of the San Francisco office with assistance from John Rymas of the Enforcement Division’s Market Abuse Unit.  The SEC’s litigation will be led by Susan F. LaMarca.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of California, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

Speaker: Mark Steward, Director of Enforcement and Market Oversight
Location: De Vere Grand Connaught Rooms, London
Delivered on: 20 September 2017


  • There has been an approximate 75% increase in the number of FCA investigations over the past year, as a result of three factors:
  1. more investigations into capital market disclosure issues
  2. the extension in scope of the reporting regime for firms, brought about by MAR, which has given the FCA a richer and more varied market picture, leading to more cases being selected for investigation
  3. the FCA’s change in approach when deciding whether to open an investigation
  • MIFID II, and improvements in the FCA’s capacity to collect and aggregate order book data from all venues, will allow the FCA to understand the markets it supervises with much greater precision, detect serious misconduct earlier, and improve its policy assessments.
  • The FCA will act proportionately, when deciding whether to take enforcement action against firms covered by MIFID II, which have not transitioned in time for 3 January 2018.   

Note: this is the speech as drafted and may differ from delivered version.


Thank you for inviting me here this afternoon. 

I want to speak to you about recent FCA enforcement trends, especially in the context of wholesale markets and, given the work of the AFME and your interest in being here today, the way in which MiFID II is already influencing the trend line.

As you know MiFID II represents a significant change and challenge not only in practice but also in essential logistics. What will remain in place, if not strengthen, is the deep relationship the FCA enjoys with our European colleagues, sharing information, intelligence and practice, on a daily basis, especially in the regulation of our wholesale markets. I should also acknowledge the role of the AFME and its membership in helping to cultivate these mutual benefits. Long may all of this continue. 

Enforcement Trends

Let me start with enforcement with special focus on our wholesale or markets-facing work.

The most significant change over the last year has been in the uptick in the number of investigations we have commenced. The uptick is significant, representing approximately a 75% increase in the number of investigations on foot.

I think there are three important factors at play here.

First, we are broadening our shoulders. We have commenced more investigations into capital market disclosure issues, especially where we see there may be poor disclosure practices or, in some cases, where poor disclosure can mislead the market and become market abuse. Good disclosure by issuers is an important component in any market working well and so we are keen to ensure high standards are maintained. For example, we took action against Tesco Ltd earlier this year for market abuse in which we imposed the first redress order under section 384 of the Financial Services and Markets Act. 

Secondly, there have been significant legislative changes under the Market Abuse Regime (MAR) influencing investigation numbers. MAR has extended the scope of the reporting regime for firms in terms of markets, platforms and conduct. This means more participants reporting more data, especially around suspicious transactions and, significantly, the reporting obligation includes orders now as well (STORs). 

Almost as soon as MAR commenced, in the middle of last year, we saw an equally significant increase in the number of STORs – in the order of a 77% increase on 2015/16. 

Unsurprisingly, a richer and more varied market picture – a better view in other words - combined with the stimulus of suspicions provided by the market itself, has led to more cases being selected for investigation. 

I should add that MiFID II will further enrich our view of the market as we will capture even more data. Currently we capture around 20 million transaction reports per day and we estimate this will increase under MiFID II to around 30-35 million transactions, in excess of 50 million orders per day or a total of over 1 trillion data points per year. I will return to this notion of us gaining a better view of the market and how this is shaping our work in a moment. 

The third factor in the increase in investigation numbers has more to do with our starting point for investigations. Some background is needed to explain this. 

Our aim is to be able to collect order book data on a daily basis from all venues in all cash markets enabling us to segregate order flows by firms and trader and, given the additional data sets that we will collect under MiFID II, with the introduction of legal entity identifiers, by client also.  It will be a powerful tool that will provide substantial regulatory benefit in the public interest. This is, I think, a sea change in our ability to view the whole market.  

In November 2015, the HBOS Report was published. The Report focused on the failure of HBOS. However, one part of the report, which was written by Andrew Green QC, reviewed the reasonableness of the FSA’s investigations into the failure of HBOS. Andrew made some important findings, one of which, in his view, partly explained why the then FSA did not conduct further investigations into the failure of HBOS when it could have, namely a view that such investigations would not have been successful i.e. they would not have led to successful enforcement actions so it was not viable to conduct them. 

In his view, this was misguided given the public interest at stake in the failure of HBOS, especially given the statutory threshold for an investigation into some individuals in fact had been met.

While there is little doubt that ‘prospects of success’ is an important element in considering whether enforcement resources should be deployed, I think it must be right that the merits of a case cannot be assessed before you have the relevant evidence, or even the key evidence. This is a real horse before cart issue. 

Andrew’s views have prompted some thinking around what should be the starting point for an investigation.

The Starting Point…

The legislation creates some very low thresholds and that is deliberate, I think, giving the FCA wide discretion to act where there are serious concerns but not much hard evidence to really go on. The low threshold does not mean we should always act when there is not much to go on. We need to act reasonably, fairly and proportionately and, as we said in our recently published Mission, we should act, diagnostically and remedially where we see harm or risk of harm in the context of our overall strategic objective to ensure our markets function well. 

The most significant change over the last year has been in the uptick in the number of investigations we have commenced.  The uptick is significant, representing approximately a 75% increase in the number of investigations on foot.

Putting this into the specific context of an investigation, this means we should investigate where we suspect serious misconduct may have occurred. I certainly don’t think the bar can be any lower nor should we limit our discretion given the infinite set of circumstances we may need to contend with. 

The operative word here is serious i.e. not trivial, technical or officious which implies also a rational and objective basis to investigate, where the circumstances give rise to real harm or risk of real harm caused by suspected misconduct. This will typically include, in our markets-facing work, insider dealing or other market abuse, poor disclosure affecting the integrity of our markets and, importantly, circumstances where market integrity may be harmed by financial crime. 
I know there are some who think the increase in investigation work will lead to the need for additional resourcing by the FCA. Instinctively, I don’t think this is right and pragmatically, in light of Brexit and other work on our plates, it is not remotely feasible! 

The challenge then for us is to become vastly more efficient, strategic and focused, especially in conducting investigations more quickly and expediently. And this is exactly what we have been doing. From my own experience, I know this can be done.

As we pointed out in our Mission, the function of an investigation is essentially diagnostic, to enable us to understand, when serious misconduct may be in issue, what has really happened and what we need to do about it. It is a fundamentally different process to litigation where we have a view about what has happened. When we are investigating, we have not concluded any view about what has happened. Importantly, while all litigation we conduct should be premised on a proper investigation of the evidence, an investigation does not mean litigation is inevitable. 

One example might describe the difference and the function of an investigation better. In litigation, as most litigators know from bitter experience, it is very risky to ask a question you don’t know the answer to – the answer is often unhelpful to your cause, so litigators know it is better not to ask it. In an investigation, it is the opposite. Usually we will not know the answers before asking the question, which is why we need to investigate. And having asked the right questions is a precondition to making better decisions about what might need to be done.

The investigator’s mind, at the start of an investigation, should be a quiver of arrow-like questions rather than a disposition or view as to what the outcome needs to be.

Moving more quickly means detecting suspected serious misconduct as early as possible and this is where the new data we are collecting under MAR and will receive under MIFID II can shape our enforcement work for the better. Let me now turn to that.

A Better View

In addition to the capture of transaction reporting data, we are now developing our capacity to collect and aggregate order book data from all venues using a cloud-based platform. Previously we did not routinely capture order book data. It is not routinely reported to us and to gather it we need to capture it from the different trading venues. The logistical challenge is then to aggregate it so we are able to read-across venues and markets. This is an enormous but important technical challenge but I think is essential for us to gain a better view of our wholesale markets.

Our aim is to be able to collect this data on a daily basis from all venues in all cash markets enabling us to segregate order flows by firms and trader and, given the additional data sets that we will collect under MiFID II, with the introduction of legal entity identifiers, by client also. We also have plans to expand the scope of this collection to other markets in the future. It will be a powerful tool that will provide substantial regulatory benefit in the public interest.

The challenge then for us is to become vastly more efficient, strategic and focused, especially in conducting investigations more quickly and expediently.  And this is exactly what we have been doing.  From my own experience, I know this can be done.

This is, I think, a sea change in our ability to view the whole market. It will enable us to make assessments, virtually in real time; it will allow us to understand the markets we supervise with much greater precision; it will reduce false positives and data requests to firms and, it will enable us to detect serious misconduct earlier, especially suspected manipulation which is far more challenging to detect than insider dealing. 

The sea change, of course is not just directed to creating enforcement dividends. The better view of our wholesale markets will feed and shape our work more widely, not only in our oversight of markets but also our supervision of firms and our policy assessments as we give effect both to our commitment to market integrity and our strategic objective to ensure all our markets work well.

Enforcement of MiFID II

We are very conscious of the obligations imposed by MiFID II on firms. Our objective has been to help firms put in place the foundations for MiFID II and to be ready for day one on 3 January 2018. 

We have issued statements reminding firms not authorized for MiFID II activities or firms that need variations of permission that they needed to submit completed applications for authorisation or variations of permission by 3 July 2017 to be guaranteed their applications will be determined in time. Many firms have managed to meet this deadline, and some have not. Those firms really need to take action now.

Similarly, all legal entities and individuals acting in a business capacity who are clients of firms subject to MiFID II transaction reporting obligations and firms themselves must have a Legal Entity Identifier or LEI if they wish to carry out transactions from 3 January 2018. Firms must ensure these clients have an LEI before effecting transactions covered by MiFID II on their behalf. 

I know some of you want to know what our enforcement approach will be for firms that have not completely transitioned in time for 3 January 2018.

As always, we intend to act proportionately. In this context, this means we will not take a strict liability approach especially given the size, complexity and magnitude of the changes that are required to be in place. We are very aware of how much work many firms have been engaged in for a very long time now in re-tooling and preparing for next year. This means we have no intention of taking enforcement action against firms for not meeting all requirements straight away where there is evidence they have taken sufficient steps to meet the new obligations by the start-date, 3 January 2018. 

Many firms that have been working well to prepare for next year and they should feel assured and confident that they can continue to work with us to meet the starting line. At the same time, we cannot create a floor for compliance below the required MiFID II standards and so our disposition is likely to be different where firms have made no real or genuine attempt to be ready or where key obligations are deliberately flouted. 

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The Joint European Supervisory Authorities (ESA) Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector come into force on 1 October 2017. The FCA and PRA have notified the ESAs th...

Speaker: Jonathan Davidson, Director of Supervision - Retail and Authorisations
Location: City and Financial Summit, London
Delivered on: 20 September 2017

Note: This is the text of the speech as drafted, which may differ from the delivered version.

Key points

  • Cultural change requires individual engagement and accountability.
  • Culture may not be measurable, but it is manageable, for example through incentives and governance.
  • We want consumers to understand the FCA’s expectations around culture in firms and feel able to speak up when standards aren’t met.
  • An ethical culture can be more powerful than one based solely on financial incentives.


Thank you. I’m here today to talk about culture and conduct in financial services through the lens of the Senior Managers and Certification Regime or, as I like to call it, the Accountability Regime. The first phase of the Accountability Regime was introduced for about 900 banks and deposit takers in March 2016. Now we are consulting on how to extend the Accountability Regime to over 47,000 other firms.

I was actually here a year ago and made a speech about culture in financial services. 

In that speech, I set out a definition of culture as being the mindsets and behaviours that are typical for staff in each firm. 

These tiny, everyday acts by individuals are what make up the overarching culture of the firm in which they take place.

A year has gone by so I first want to talk to you about the progress we have made on the FCA’s mission as a conduct and competition regulator and why and how that has shaped our continuing focus on culture. 

The Accountability Regime is directly targeted at the culture of firms. So my second objective today is to talk about the design of the Accountability Regime.

Finally, and most importantly, I want to enlist your support in thinking about a potential cultural transformation of the financial services industry.

Why culture is important

Culture may not be measurable but it is manageable

So why is culture so important to us?

It’s now ten years since the financial crisis; a crisis that was a generation defining event. The regulatory response to the prudential crisis has been profound. It has redefined and reshaped the banking industry. Ringfencing is a clear example of this.

But the crisis was as much a conduct crisis as it was a prudential one. So at the FCA we have also reflected profoundly on how we regulate the financial sector. Earlier this year we consulted and published our thoughts on this in a Mission publication and we will publish a follow up on how we approach supervision early next year. In this we will address the challenge of how to approach supervising around 56,000 firms with huge variation in size and business type, for example ranging from a dentist providing credit for orthodontic work to a multi-national financial conglomerate. We cannot continuously and closely supervise outcomes in every one of these firms. Our ambition is to be forward looking and pre-emptive by addressing root causes. What are the root causes that we see as important?

We see two: first, the strategy and business models of firms and second, the culture of firms. And the two are closely interlinked.

It is very clear that business models often create commercial incentives for behaviours that lead to poor outcomes for consumers. For example, we have found repeatedly in several sub-sectors of consumer credit that firms were making profits on the back of irresponsible lending to consumers who could not afford to repay the debt.

You will appreciate that keeping on top of business models is a considerable challenge given the diversity of the sectors that we cover and that over the last ten years the strategy and business models of firms have evolved and changed at a staggering pace.

Of course, your strategy is your affair and we do not seek to prescribe your strategy and business model… Up to a point. We do aim to understand pre-emptively how business models are evolving to anticipate where there are risks of harm that might emerge and then use the most effective regulatory tools to ensure that the risks are mitigated. We will talk more about this when we publish our approach to supervision.

But what about culture? Isn’t it enough that the costs of misconduct in fines and redress are now a very significant disincentive to misconduct? We don’t think so. 

Our view is that it can’t just be business – it has to be personal too.

Having individuals within firms being held personally accountable for their work has been shown to affect outcomes positively in a number of sectors. For example, there is evidence from research into accounting practices which shows that increasing perceived individual accountability by requiring the audit engagement partner to sign the audit report with their own name rather than the company name, improves both the quality of the audit and decreases manipulative practices.

Firms are focusing on culture too. Indeed, I hear in boardrooms relentless discussion of culture and am often asked how senior managers should measure their culture and how we, the FCA, measure and set targets for their culture.

My response is that culture may not be measurable but it is manageable.

We look to assess what management is doing to manage culture using four types of lever.

The first lever is a clearly communicated sense of purpose and approach. Clearly communicating the ‘what’ and the ‘how’ are very important to getting a firm to work effectively and efficiently. But they pale into the background when contemplating the power and effect of a well communicated and resonant ‘why’. It is the tacit understanding, shared by employees, of a company’s true purpose. This is not necessarily what is articulated formally in a company’s mission statement and values. I often learn more about a firm’s sense of meaning by reading the strategic plans. And I suspect that employees do too. 

The second lever available to senior managers is ‘tone from the top’ – what staff hear and see from senior management. What are the behaviours that senior managers role model to their employees? 

The third lever is the formal governance processes and structures, the policies and systems that specify expected behaviours and decisions. From a conduct culture point of view, we look for a well thought through conduct risk framework: is there a clear exposition of conduct risks, the systems and controls for mitigating them and risk indicators for monitoring them?

Finally, there are people related practices, including incentives and capabilities. Remuneration, promotion and recognition criteria all matter. Does a firm’s pay structure reward misconduct? Is the pressure to turn a profit driving employees to act against consumers’ interests? 

People capabilities are becoming more and more important to having the right culture. It’s not enough to be motivated to behave in a new way; people also need to understand how to be successful with the new behaviours.

The accountability regime reinforces this view of culture and its key drivers. It sets a standard for the outcomes of culture and has an important impact on senior managers, on how a firm is governed and on people’s capabilities. How does it do this?

What the accountability regime aims to achieve

Every customer should know these rules and what they are legally entitled to

The accountability regime has three essential components.

First, the conduct rules which are at the heart of the regime are a set of minimum standards for every individual’s behaviours. There are only five of them. They are: 

  • You must act with integrity
  • You must act with due care, skill and diligence
  • You must be open and cooperative with the FCA, the PRA and other regulators
  • You must pay due regard to the interests of customers and treat them fairly
  • You must observe proper standards of market conduct

These apply to all employees within a firm that do financial services. 

When my team was in York last week, a member of the audience raised the issue of whether it would cause worries and stress if these rules were applied to junior employees. But before the team could respond, a Building Society executive said that when they had implemented it their employees read the rules and said – “well this is what we should be doing already!”

Of course, the rules look like common sense, so it is easy to skate over them without thinking how they apply to each job. So we have introduced a requirement to train all employees about what they might mean for them.

Ideally, every customer should know these rules and what they are legally entitled to, so that they can say “That must be against the conduct rules” in the same way that they often say “That must be against the trade descriptions act”.

The second component of the regime is the rules for senior managers.

The conduct rules apply to pretty much everyone. But senior managers have a special role to play, either because they make important decisions, for example on the strategy and business model; or because they oversee the decision making of others. That’s not all: they lead the organisation and shape the culture through the tone from the top and the other cultural levers I discussed earlier. 

It is therefore particularly important that they are fit and proper – that they act with integrity and can act with appropriate skill. We at the FCA will therefore continue to approve the appointment of senior managers.

It is also important that there are clear lines of accountability between a decision made and the senior manager who made it or oversaw it. The Accountability Regime therefore requires that each and every senior manager has clear accountabilities set out in an individual Statement of Responsibility. Talking about ‘responsibilities’ here can be seen as a bit of a misnomer – your statement of responsibility is first and foremost the areas for which you are accountable, not the day-to-day tasks you are responsible for. To be precise, you are responsible for taking reasonable steps to ensure that the decisions made by the people that you lead are appropriate.

Of course, we’re aware of the huge diversity of the firms we regulate. That’s why our proposal is that the number and types of senior manager roles that a firm should have should reflect the size and complexity of the firms and the way that they are run.

The final major component of the regime is the certification rules. As I pointed out earlier, good conduct culture is about having the right capabilities as well as the right motivation. Indeed, under our conduct rules, we emphasise that employees need to act not only with integrity but with due skill, care and diligence. So while the FCA continues to approve senior managers, firms have a special responsibility to ensure that people in positions that significantly affect conduct outcomes can do their job well. We have made it the responsibility of firms to ensure that people who are in significant positions of conduct can do their job well. Most of these roles would have been approved by the FCA in the approved person regime. Going forward, this will be an on-going responsibility, which is why we propose requiring firms to do an annual assessment.

Moving beyond a ‘fear based’ culture

there is no off-the-shelf FCA approved culture package that you can download and install in your business

Many people fear that the accountability regime is all about enforcement. We will be upholding the standards through enforcement. But just because something goes wrong in your area of responsibility doesn’t mean you are automatically liable. Our approach will be to assess whether you took reasonable, and I mean reasonable, steps to prevent other people breaching the conduct rules.

That being said, I sense that the ‘why’ in some areas in financial services is still about the money and about fear – including fear of the regulator. I talked recently to a senior executive who told me that fear had driven them to make radical and rapid change for the better. However, she told me that it was a very effective source of motivation but it wasn’t personally sustainable for the long term. So fear can’t be the only source of motivation.

The emerging field of behavioural economics also has important implications for how financial services culture can embody and deliver on the conduct rules.

A few examples, starting with an unlikely parallel: consider the case of day nurseries and tardy parents.

Nurseries rely on the conscientiousness of parents to collect their kids on time so they can close facilities at the end of the day.

As many nurseries will tell you, there is always the odd outlier who arrives late to pick up their child and has to beg forgiveness from staff. But on the whole the system works.

Some curious economists wondered what would happen if a financial incentive was involved. So a few select nurseries began fining parents who failed to arrive on time.

Immediately, more parents started showing up late.

Why? Because the nurseries had reduced the decision to a commercial one and had defined the ‘cost’ of tardiness. And parents decided they were prepared to spend the extra money for the convenience of being able to arrive half an hour late.

I take away from this and other similar examples that an ethical culture can be more powerful than one based solely on financial incentives.

In another example, an experiment was conducted where the wording at the start of a test was changed from ‘please don’t cheat’ to ‘please don’t be a cheater’. This simple change in wording cut cheating in half. I take away from this that a culture which builds on people’s desire to see themselves as good people, rather than simply just having a compliance culture that punishes transgressions, is likely to be more effective.

A final example: people’s perceptions of what is the right thing to do are greatly influenced by what they see around them. We don’t need the results of academic research to know this. All parents recognise the situation in which a child who has misbehaved will defend themselves by saying ‘but everyone else does it’. Unfortunately, it’s not only children who rely on this argument – this has in the past been the basis of defence for many individuals involved in a range of misbehaviours.

Working with the levers of culture that I described at the beginning of my remarks, is it possible to move from a compliance culture to an ethical culture?

The answer to that is I think it is. Twenty years ago if someone had too much to drink at a party the disincentive for them driving might have been the fear of getting breathalysed and losing their licence. Today, friends may well intervene to take away their keys because they felt this was the right thing to do.

However much compliance officers may wish it, there is no off-the-shelf FCA approved culture package that you can download and install in your business (‘click here for good culture’).

Each firm will have a different culture. And that’s fine – it is not the FCA’s role to dictate a firm’s culture any more than it would dictate its business model or strategy.

Whether you conduct meetings sat on beanbags and funky sofas or enforce a ‘top hat and tails’ dress code, it doesn’t matter to us. 

However, I think that an ethical culture could be a sound business proposition. A sense of inspiration not only enables some firms to deliver the right customer and conduct outcomes, it also leads to greater employee engagement, better teamwork and more innovation. By the way, it also delivers lower sickness, absentee and turnover rates.

So we have higher aspirations for financial services culture than one that is purely fear based. In other words, being good could be good for business.

Closing remarks/looking to the future

I started my speech by reflecting on the past. I want to finish by looking to the future.

I hope that the accountability regime will be a good thing for firms as well as customers and markets.

It is the antidote to decision-making by default, fostering clear accountability and thinking. I am hopeful. Firms who have already applied this regime tell me they are already feeling its positive effects.

By extending the regime, we are also extending this new approach, this new mindset, across the whole industry.

And I hope that, whether you’re a credit broker in Carlisle or an international investment manager in Canary Wharf, you will agree that having the right culture is just good business.

Thank you.

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After almost a decade of crisis and uncertainty in the Eurozone, optimism is on the rise. But still unemployment is high and divergences among member states are always there. What should be done so that the euro delivers on its promise to increase the wealth of the societies? To discuss this I am joined here by…

The Securities and Exchange Commission today announced that Catherine McGuire, Counsel in the Division of Trading and Markets, is retiring after 44 years at the SEC.

Ms. McGuire has received more than a dozen awards for her service, including the Distinguished Service Award, the SEC’s highest award, in 1992, and the Presidential Meritorious Executive Award, in 2000.  She began her SEC career in 1973 in what was then the Division of Market Regulation and was promoted to positions of increasing responsibility, including serving as Counsel to Commissioner Bevis Longstreth from 1982 to 1983.  She was named Chief Counsel and Associate Director of the division in 1993 and has advised the division as Counsel since 2008.

“Catherine McGuire has been an outstanding advocate for investors and a guardian of safe and efficient markets throughout her career at the Commission,” said Division of Trading and Markets Acting Director Heather Seidel.  “She has been dedicated to the Commission’s mission to protect investors, maintain fair and orderly markets, and facilitate capital formation, and her continuing legacy is a talented and committed division staff, many of whom she mentored, supported, and advised.”

Ms. McGuire said: “I am grateful to have spent my legal career at the Commission.  I am extremely proud of the work by the Division of Trading and Markets and the dedication of its staff.  Their commitment to the agency’s mission is inspiring and represents the best of government service.  It has been a privilege to work with them on behalf of investors.”

Ms. McGuire’s numerous and significant contributions include work to implement the Securities Reform Act of 1975, the Securities Exchange Act Amendments of 1983, the Secondary Mortgage Market Enhancement Act, the Market Reform Act, the Government Securities Act, the National Securities Markets Improvements Act, the Gramm-Leach-Bliley Act, the Commodity Futures Modernization Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act.   She also worked on rules involving trade confirmations, regulation of municipal securities and government securities dealers, municipal securities disclosure, retail sales practices, securities arbitration, anti-money laundering, options, and derivatives.

Ms. McGuire is a graduate of the University of Michigan and the University of Kansas School of Law, which honored her with the Distinguished Alumna Award in 2004. 

Almost all firms and individuals offering, promoting or selling financial services or products in the UK have to be authorised by us.However, some firms act without our authorisation and some knowingly run investment scams. This firm is not author...

PSD2 is an EU Directive which sets requirements for firms that provide payment services, and will affect banks and building societies, payment institutions, e-money institutions and their customers. As well as promoting innovation, PSD2 aims to improve consumer protection, make payments safer and more secure, and drive down the costs of payment services. The new regime will be in force from 13 January 2018.

More services will be brought within the FCA’s scope by PSD2. These include account aggregation services which aim to help consumers manage their finances by bringing all of their bank account data together in one place, and services that allow consumers to make payments in different ways online, without using a credit or debit card.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:

'Competition in the retail banking and payments is vital to UK consumers and the wider economy. PSD2 builds on this by giving consumers more choice around how they manage their payments and bank accounts. It also brings in some important protections for consumers and seeks to increase the security of payments.

'Firms should make sure they know what’s required of them to be ready for the new regime. We will continue to monitor closely whether competition in the market improves in the interests of consumers.'

PSD2 also introduces a number of new requirements around how firms treat their customers and handle their complaints, and the data they must report to the FCA.

It requires existing payment institutions and e-money institutions to be re-authorised or re-registered. Firms should consider whether they now need to seek authorisation or registration because of changes to the scope of regulation made by PSD2. This includes businesses providing account aggregation or online payment initiation services. Applications will open on 13 October 2017. 

Notes to editors

  1. In the UK PSD2 is largely implemented through the Payment Services Regulations 2017, which was published by HM Treasury.
  2. The FCA is the competent authority for PSD2. The FCA has published the PSD2 Policy Statement which explains the changes we are making to our proposals following consultation and confirms amendments to our Handbook and new non-Handbook directions for certain firms excluded from regulation. The FCA has published its Approach Document alongside this – this is designed to help firms navigate the payment services and e-money regulatory requirements, including those set out in HM Treasury regulations.
  3. PSD2 requires all payment account providers across the EU to provide certain regulated firms access to customers’ accounts, subject to their explicit consent. One way of making this access possible could be through the Competition and Markets Authority’s Open Banking remedy, which follows from the 2016 market investigation into competition in the UK’s retail banking sector. 
  4. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  5. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  6. Find out more information about the FCA.

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