Diagnosis for an ailment (but involving no doctors)

A new report from a House of Lords Committee claims that a “𝗱𝗲𝗲𝗽𝗹𝘆 𝗲𝗻𝘁𝗿𝗲𝗻𝗰𝗵𝗲𝗱” 𝗰𝘂𝗹𝘁𝘂𝗿𝗲 𝗼𝗳 𝗿𝗶𝘀𝗸 𝗮𝘃𝗲𝗿𝘀𝗶𝗼𝗻 from the regulators needs to be addressed & the leadership of the FCA and PRA need to do more to “𝗱𝗿𝗶𝘃𝗲 𝗰𝘂𝗹𝘁𝘂𝗿𝗮𝗹 𝗰𝗵𝗮𝗻𝗴𝗲 𝘁𝗵𝗿𝗼𝘂𝗴𝗵𝗼𝘂𝘁 𝘁𝗵𝗲𝗶𝗿 𝗼𝗿𝗴𝗮𝗻𝗶𝘀𝗮𝘁𝗶𝗼𝗻𝘀”.

https://committees.parliament.uk/committee/697/financial-services-regulation-committee/news/207595/culture-of-risk-aversion-among-financial-regulators-undermines-their-competitiveness-and-growth-objective-warns-committee-report/

The background being an examination by the Committee of the secondary international competitiveness & growth objective of the UK regulators.

Before everyone in the Government, Regulators & Industry rushes for their “culture change” toolbox (& big consultancy snake-oil) can they consider:

• What expertise & insight has been used in this work to assess the current state of culture in the Regulators?

• What expertise & insight do the Regulators themselves have in this matter?

• What expertise & insight do the FS companies themselves have in this matter?

And has anyone paused a while to actually define & describe what they mean by the “culture” in the regulators.

Or is it just assumed that everyone has the same understanding?

Having looked through the 148 pages I couldn’t see any expert witnesses, attendees or content that went into detail on cultural and behavioural insight, capability, analysis, understanding, or change. 

And yet that is the main finding (a “deeply entrenched” culture) & the main recommendation (“drive cultural change”)! 

The scent of overconfidence bias wafts into the nostrils. We are all humans after all.

Senior parliamentarians, bankers & other professionals, through their success and vast experience must (assume that they) -

1. understand people

2. know what drives people

3. know what solutions are needed?

To be clear - I agree that there is likely a need to ease regulatory burden, excess controls, costs & bureaucracy. 

The regulatory environment is complex & many find it challenging to navigate and remain compliant, & many current actions are likely to follow the law-of-unintended-consequences. 

There is a need to look at a wider set of regulatory tools outside of traditional capital & regulation, sticks & carrots – especially if you want to encourage business, efficiency & competition in balance with regulation. 

But if that is the aspiration, then the best approach is to consider what behavioural & psychological knowledge, approaches & insights could help. 

To do that you had better ensure you are using suitable behavioural analysis, capability & expertise in Government, Regulators and Banks, to understand the complex soup of behavioural drivers that influence people’s action and inaction. 

The subtitle to the report is “𝗚𝗿𝗼𝘄𝗶𝗻𝗴 𝗽𝗮𝗶𝗻𝘀: 𝗰𝗹𝗮𝗿𝗶𝘁𝘆 & 𝗰𝘂𝗹𝘁𝘂𝗿𝗲 𝗰𝗵𝗮𝗻𝗴𝗲 𝗿𝗲𝗾𝘂𝗶𝗿𝗲𝗱”. But to avoid yet more pain let’s have some clarity before we try and change something we haven’t attempted to define or understand.