To what extent does a focus on accountability promote regulatory compliance in the UK financial services sector?

Excessive risk-taking and poor corporate culture led to a number of high-profile financial scandals for which the regulators found it difficult to hold any individual responsible. In response to this, an accountability regime referred to as the Senior Managers and Certification Regime (SMCR) was introduced in the UK as a governance measure. This investigation is embarked upon because the impact of accountability mechanisms on regulatory compliance in general and in the financial sector in particular is only partially understood in the way it drives behaviour, risk-taking, and decision-making. This research explores whether the implementation of SMCR is having any impact on the conduct and management practices of senior executives, either in the way they govern or in their support for developing an effective culture of compliance.

This primarily explorative study is based on in-depth, semi-structured interviews with 20 compliance practitioners covering banking, insurance, and investment. The study found that compliance directors still, to some extent, felt underappreciated and lacking in support. Nonetheless, the SMCR does place a greater burden on senior executives to take responsibility for behaviour and conduct, which does give compliance directors more status and prominence and facilitates wider participation in compliance activities within financial services companies. Additionally, despite competing accountability pressures between commercial and regulatory considerations, compliance directors are more confident about emphasising to their boards that more focus on regulatory compliance is in the long-term best interest of their organisation.

This study recommends that regulators disaggregate the values inherent in SMCR and carry out thematic reviews and so more certainly incentivize good compliance behaviours and disincentivize bad ones. It also re-contextualizes accountability theories in a regulator-regulated relationship and contributes to the debate on how, in the context of financial services, to improve compliance culture and reduce the occurrence of financial scandals.