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Occasio Consulting

Provides expert advisory services in corporate governance, risk management, and regulatory compliance

UK Corporate Governance Code

UK Corporate Governance Code

The updated UK Corporate Governance Code, published in January 2024 by the Financial Reporting Council (FRC), introduces changes focused on board leadership, risk management, internal controls, and reporting, with most changes effective for periods beginning on or after January 1, 2025.

UK Corporate Governance Code

FCA Listing Rules
In July 2024, the Financial Conduct Authority (FCA) updated its Listing Rules, including the categories under which securities are listed on the Official List. As a result, there was a change in the companies required to follow the UK Corporate Governance Code. Previously, the Code applied to premium-listed companies. Going forward, companies which need to follow the Code include all those listed in the commercial companies category or the closed-ended investment funds category.

For further information, please see the FCA consultation response

Key Changes and Highlights:

The 2024 Code applies to financial years beginning on or after 1 January 2025, other than Provision 29 which will apply to financial years beginning on or after 1 January 2026.

Material Controls Declaration
– Boards are now required to make a declaration in their annual report regarding the effectiveness of material internal controls.

Risk Management and Internal Controls
– The Code emphasises the board’s responsibility for establishing and maintaining the effectiveness of the risk management and internal control framework.

Reporting Requirements
– The updated Provision 29 requires boards to provide a description of how they have monitored and reviewed the effectiveness of the risk management and internal control framework, as well as a declaration of effectiveness of material controls.

Comply or Explain
– The Code operates on a “comply or explain” basis, allowing companies flexibility in demonstrating how they meet the Code’s standards.

Focus on Outcomes
– A new principle encourages companies to report on outcomes and activities, demonstrating the impact of their governance practices.

Diversity and Inclusion
– Changes have been made to Principle J to promote diversity, inclusion, and equal opportunity, without referencing specific groups.

Audit Committee
– Provisions 25 and 26 have been updated to reflect the FRC’s Minimum Standard on Audit Committees and the External Audit.

Consumer Duty

Consumer Duty

In July 2022, the FCA set out the final rules and guidance for Consumer Duty, outlining higher and clearer standards of consumer protection across financial services to deliver good outcomes for customers.

The Financial Conduct Authority FCA published final rules for the Consumer Duty along with key timescales in July 2022.  To allow firms to understand how they are required to implement the new rules , the regulator has provided practical guidance to helps firms comply with the new Duty and meet the regulators expectations.

The introduction of the Consumer Duty is the biggest regulatory shift in financial services in recent years.  The FCA have made it clear in their Policy Statement (PS22/9), that Consumer Duty is not a ‘one size fits all’ and that implementation plans need to be tailored to each firm and their practices.

The regulators aim is to ‘ensure a higher and more consistent standard of consumer protection for users of financial services, and to prevent harm before it happens.

Having a good understanding of Consumer Duty is an important part in a firm being able to implement it properly and confidently.   The new Duty is broken down in three sections, The Principle, cross cutting rules and the four outcomes.

i. The Principle

An introduction of a new Principle 12 is being introduced with the aims of setting higher standards for firms.  When Principle 12 applies, it overrides the existing Principles 6 (treating customers fairly) and 7 (clear, fair and not misleading communications).  The new Principle 12 is outcomes focused and therefore each firms implementation plan also requires this approach.  One of the aims of Consumer Duty is for firms to be more proactive.

ii. The cross-cutting rules

Underpinning the new Principle, the FCA have laid out three cross-cutting rules, which are,

a. Acting in good faith
b. Avoid causing foreseeable harm
c. Enable and support retail customers to achieve their financial objectives

iii. The four outcomes

The four outcomes should be central to a firms’ implementation plan
product service

Next steps

The FCA have released five key milestones for firms to prepare for.

=> 27th July 2022 – Finals rules and guidance published
=> 21st October 2022 – Firms to agree implementation plans
=> 30th April 2023 – Manufacturers to complete reviews to meet the outcome rules
=> 31st July 2023 – Rules start for open products/services
=> 31st July 2024 – Rules start for closed products/services

Useful links:

  1. Consumer Duty resources
  2. Consumer Duty sets higher standards for financial services customers
  3. FG22/5 Final non-Handbook Guidance for firms on the Consumer Duty
  4. Consumer Duty implementation: good practice and areas for improvement

Vulnerable Customers

The Financial Conduct Authority (FCA) outlines a vulnerable customer as ‘Someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care’.

Key Characteristics of Vulnerability:

  • Susceptibility to Harm:

Vulnerable customers are more likely to suffer negative outcomes, particularly when firms don’t provide adequate care.

  • Personal Circumstances:

Vulnerability arises from factors like age, health, disabilities, financial literacy, or life events that can limit a person’s ability to make informed decisions or protect their interests.

  • Examples of Vulnerability:
    • Age:Advanced age, or young age.
    • Health:Physical or mental illness, cognitive impairment (like dementia), or learning disabilities.
    • Financial Literacy:Low knowledge of financial matters, low confidence in managing money, or insufficient digital skills.
    • Life Events:Bereavement, relationship breakdowns, or other major life changes.
    • Disabilities:Physical or learning disabilities.
    • Communication Difficulties:Low literacy, or difficulties with language or communication.
    • Other Factors:Experience of domestic violence or sexual abuse, heavy reliance on others for care, or exposure to financial abuse.

FCA Guidance:

The FCA emphasizes that firms must understand the needs of vulnerable customers and ensure they are treated fairly. They expect firms to:

  • Understand the Needs of Vulnerable Customers:Firms should identify and understand the specific needs of vulnerable customers.
  • Provide Appropriate Support:Firms should provide tailored support and care to meet the unique needs of vulnerable customers.
  • Ensure Fair Treatment:Firms must ensure that vulnerable customers are treated fairly and with the appropriate level of care.
  • Demonstrate Good Consumer Outcomes:Firms should be able to demonstrate that they are meeting the needs of vulnerable customers and achieving good consumer outcomes.

Useful links

FG21/1 Guidance for firms on the fair treatment of vulnerable customers

Culture

In an increasingly competitive market environment, a high performance and well-embedded organisational culture can be a key differentiator and enabler for sustainable success and value creation. There are several facets to culture as follows.

Culture

1. Regulatory expectations

Regulators, specifically the UK’s Financial Conduct Authority (FCA), have become increasingly interested in organisational culture within the financial services industry since the Global Financial Crisis (GFC) of 2008. There has been an increased focus on organisational culture as part of the desire to align risk taking, management and governance processes to a renewed moral narrative of organisational purpose.

1a. Boards and Senior Management

The FCA expects senior leaders to nurture healthy cultures in their organisations, that are purposeful, have good governance, and where employees feel psychologically safe to speak up and challenge. Culture is central to the ‘FCA’s supervisory model as it is what underpins outcomes – firms with healthy cultures will be best equipped to adapt to a changing world and to consumers with changing expectations’. The FCA expects firms’ boards and senior management to embed a healthy culture, getting the culture right underpins business performance as well as attracting and retaining the right talent.

1b. Consumer Duty and Customer-centricity

The underlying reason for the increased regulatory scrutiny is to ensure fairer outcomes when dealing with customers under the recently implemented Consumer Duty regulation, the biggest regulatory shift in financial services in recent years. The Duty sets high standards of consumer protection across financial services, requiring firms to put their customers’ needs first. The final rules and guidance were published in July 2022 by the FCA and came into effect from July 2023 (FCA, 2022).

Aligning Consumer Duty requirements with the organisational values and leadership principles requires deliberate effort and intervention which should be reinforced and implemented through training and goal setting.

2. The need to be ‘Glocal’

Organisations are increasingly becoming multinational with a global footprint spanning across most of the continents, resulting in multinational management that act within multinational and transnational organisations. The global and local operating environments influence organisational culture and management systems, evolving from ethnocentric and polycentric to management without borders. Leaders and managers are dealing with increased complexity managing an international workforce across different national cultures and sub-cultures, thereby necessitating a new skillset that can be described as cultural intelligence beyond emotional intelligence, which requires global thinking but local delivery – hence merging the terms global and local to derive ‘glocal’.

Culture helps people and organisations understand and respond to a constantly changing world.

3. Driving high performance and increased productivity

Culture is a key driver for organisational success and increased productivity, contributing to an organisation’s competitive advantage and sustainable success through different economic cycles. New strands of research in this area continue to emerge and show that organisational culture remains critical in driving higher performance and profitability.

3a. Culture shift

Driving culture change is a challenge even when organisations can clearly define what they’re looking to achieve as a desired end state. The tried and tested framework evaluating and curating organisational culture employs a multi-methods approach to uncover  gaps in the current as-is culture compared to the desired-to-be culture to inform the required interventions to address the gaps.

3b. Measuring culture

  • Culture can be monitored and measured periodically through colleague surveys, incentive structures and governance oversight mechanisms.
  • Tone from the top ensures strategic and regulatory alignment reflected in global and leader-led narrative and training which can be promoted through goals and incentives

Data Analytics

Data Analytics

  • Leveraging data analytics for better risk insights and process optimisation
  • Driving impactful risk management initiatives within dynamic financial environments.
  • Afterskills Training: Leading a Data-driven TeamThe Leading a Data-driven Team workshop is designed to equip leaders with the skills and frameworks needed to drive a data-centric culture within their organizations. By understanding how to harness data and analytics, participants will gain the ability to lead teams effectively, make informed decisions, and foster innovation in todays digital landscape.

By the end of this workshop you will be able to:

  • Gain insights into the opportunities and challenges presented by the digital transformation and the role of data in shaping modern business practices.
  • Learn strategies to unlock and utilize data-driven insights that empower decision-making and organizational growth.
  • Develop a clear understanding of analytics concepts, tools, and techniques to interpret data and drive impactful decisions.
  • Explore real-world use cases to identify practical approaches for enabling data-driven initiatives and fostering a data-literate culture across teams.
  • Build the skills to foster a culture of data-driven decision-making, ensuring teams across all levels actively engage with data to drive performance and innovation.

Risk Management

Risk Management

Risk management is the process of identifying, assessing, and mitigating risks to minimize future occurrences, ensuring organizational readiness and stability amidst unforeseen challenges.

Risk culture

Regulators’ interest in the cultures of organisations and their effects on management practices  has increased dramatically in recent years in the financial services sector, with a specific focus on risk culture. See the LSE report for more information

Risk Culture components

Delivering good customer outcomes is a priority that requires a robust risk culture focused on customer protection through integrating risk management into strategy and the daily operational activities. The regulators expect an approach that ensures defined roles and  responsibilities with clear accountability, proactive risk management, continuous monitoring and improvement, an environment that fosters trust and enables sustainable growth. The core components to an effective risk culture consists of the following.

  1. Customer centricity
  2. Alignment to regulators’ expected drivers of culture – Purpose, People, Governance and Leadership
  3. Stakeholder expectations management
  4. Tone from the top
  5. Psychological safety

Risk Management

Risk Management

  1. Board and Governance effectiveness
  2. Programme Management
  3. Data Governance