The Financial Conduct Authority (FCA) has long emphasised the significance of a healthy culture in driving conduct, confidence, and resilience within firms – most recently in a speech given at City and Financial Global’s 10th annual culture and conduct in financial services summit. Central to this healthy culture is the concept of psychological safety, which serves as the glue that binds together the various elements of organisational tone and behaviour.
Tone from the top
Leadership plays a pivotal role in setting the tone for an organisation. The FCA has consistently highlighted the importance of strong leadership in maintaining a positive culture. Leaders must not only articulate the values and principles that guide the firm but also embody them in their actions. When senior leaders demonstrate integrity, accountability, and openness, they create an environment where employees feel safe to express their ideas, challenge the status quo, and admit mistakes without fear of retribution. This psychological safety is crucial for fostering innovation and enabling the firm to navigate the complexities of the financial landscape.
Tone from the middle
While leadership sets the overarching tone, middle management is instrumental in translating these values into day-to-day practices. Middle managers are often overlooked as employers focus on senior leadership and frontline employees, however they act as the bridge between both, ensuring that the organisational culture permeates every level of the firm. By fostering an inclusive environment where diverse perspectives are valued, middle managers can prevent groupthink and support better decision-making. The FCA's emphasis on diversity and inclusion underscores the importance of creating conditions where everyone can genuinely and freely contribute. This inclusivity enhances psychological safety that in turn drives the firm's ability to take thoughtful and calculated risks.
Tone from within
Ultimately, the tone from within—the collective behaviour and attitudes of all employees—determines the strength of an organisation's culture. A healthy culture is one where respect, integrity, and accountability are woven into the fabric of the organisation. Employees at all levels must feel empowered to speak up, share their insights, and report any misconduct without fear of retaliation. The FCA notes that one of the clearest signs of a failing culture is non-financial misconduct, such as bullying, harassment, and discrimination. This highlights the need for firms to address these toxic behaviours. By actively maintaining a positive culture, firms can create a social immune system that catches bad behaviour early and stops it from spreading.
The role of psychological safety
Psychological safety is the cornerstone of a healthy culture that supports successful risk-taking. Google's 'Project Aristotle' study found that the most critical ingredient for high-performing teams was psychological safety. Teams where members felt safe to speak up, challenge ideas, and admit mistakes outperformed those that did not. This finding is particularly relevant for the financial services sector, where the ability to innovate and adapt is crucial for long-term success.
Firms that prioritise psychological safety create an environment where employees are more likely to engage in open dialogue, constructive challenge, and learning from failure. This, in turn, fuels innovation, agility, and resilience. By fostering a culture of psychological safety, firms can ensure that the risks they take are thoughtful and calculated, ultimately driving sustainable growth.
What next?
As the FCA continues to emphasise, a healthy culture is not just a moral imperative but a regulatory concern. The FCA has indicated that it expects to set out more detail on its proposed next steps concerning its rules and guidance on non-financial misconduct “shortly”. Whilst it is hoped that the new rules and guidance will be well articulated, proportionate and capable of practical application, many firms are taking this opportunity to revisit their culture and supporting processes so that they are better positioned to navigate the complexities of the financial landscape, drive innovation, and achieve lasting success. This takes many forms, from culture audits through to employee surveys, dedicated manager training, reverse mentoring and other forms of allyship.