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Introduction

On 17th May 2018, #CassBusinessSchool will hold a #BehaviouralEconomics Roundtable with senior representatives from the insurance industry.

The purpose of the Roundtable is to focus on how insurance firms can affect practical change by adopting a systems perspective and the use of applied nudges and interventions. 

Following the Roundtable, a publication capturing the key topics of debate will be circulated to those who could not attend.

The FCA Business Plan 2018/19 and DP18/2 are clear in their direction of travel and findings that culture in financial services is the key root cause of major conduct failings.

The FCA has a clear desire to speed up the pace of change and firms are required to consider how they can incorporate behavioural levers to do so.

Behavioural Economics Roundtable

There will be three presentations:

– David Blunt, Head of Conduct Specialists, FCA: Business Plan 2018 – 2019 and DP 18/2: Transforming culture in financial services. This will detail the outcomes the FCA expect to see and how they will form judgments on firm’s progress

– Professor Peter Ayton, City, University of London: What can we learn from the latest Behavioural Economics research? How can firms overcome barriers to change? Post-financial crisis reviews identified groupthink, pressure to conform and lack of internal challenge as key drivers of misconduct

– Pantelis Solomon, Principal Advisor & Head of Evaluation, Behavioural Insights Team: Case studies on practical nudges and interventions that can guide cultural change. Examples of how internal and external motivation affects individual behavioural (for example, social rewards such as praise, respect etc.) and the role of change agents/middle managers.

 FCA Business Plan 2018 – 2019

The Business Plan identifies a number of cross-sector priorities, one of which is the Firm’s culture and governance. This is particularly relevant when firms design new products and services and will influence whether firm’s business models deliver the right outcomes for customers.

Another key area relates to the treatment of existing customers and understanding firms’ pricing practices in retail general insurance (i.e. dual-pricing).

The thinking in the Business Plan is based on the FCA’s ‘Our Future Approach to Consumers’ paper published in November 2017 which developed the FCA’s position on complex consumer issues such as exclusion and vulnerability.

DP18/2: Transforming culture in financial services

The Discussion Paper covers a wide range of subjects, opinions and proposed actions, with three key themes emerging:

(1) A multi-system approach is required

(2) Fostering environments of trust to encourage openness

(3) Traditional cost-benefit regulation can only go so far

Key deliverables

The FCA has identified the following key deliverables:

(1) Finalising rules to extend the Senior Managers & Certification Regime (SM&CR) to all Financial Services & Markets Act (FSMA) firms (including dual-regulated insurers)

This will ensure that key staff are accountable for their conduct and decisions. The FCA expects to publish a Policy Statement and new rules in Summer 2018. The date for solo-regulated firms will be announced in due course.

(2) Establishing a public register

(3) Focusing on firm’s renumeration arrangements

Monitoring Change

Whilst the FCA will not attempt to measure or assess culture directly, they will form judgments on the business models, strategies and culture of the firms they regulate. The FCA will do so by focusing on four drivers of behaviour they consider to be important:

(1) Purpose of the firm – applying strategic focus to adapt culture, strategies to deliver the right customer outcomes and design of new products and services

(2) Leadership – a customer centric approach, including compassion for customers

(3) Effective governance – identifying, managing and mitigating the risk of harm, the appointment of conduct ‘customer’ champions

(4) Rewarding and managing staff – renumeration practices, # of Whistleblowing cases to determine the effectiveness of firm’s internal processes

Reciproco provides knowledge integration across risk, solvency and strategy, including digital transformation, leading complex and unique projects in regulated sectors. Helping senior executives and management teams focus on strategic challenges to create a competitive advantage.

Darren Munday is the founder and Managing Director of Reciproco. An experienced executive with over 20 years’ global experience with multinational companies, including Chief Risk Officer reporting to the Board.

Darren is an Honorary Visiting Fellow of the Digital Leadership Research Centre, Cass Business School where he also holds an Executive MBA.  Darren is a Certified Fellow of the Institute of Risk Management (CFIRM) and Chartered Insurance Risk Manager (ACII) of the Chartered Insurance Institute.


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