Conduct Standards Conduct Culture

Transcription

1 < Picture to go here > Conduct Standards Conduct Culture Lloyd s 1

2 Agenda Introduction Charles Franks, CEO Kiln What the FCA have said What the standards say Cultural considerations Break-out session Practical steps to evidence culture Planning for compliance with the standards Q&A Lloyd s 2

3 Charles Franks CEO, Kiln Member of Lloyd s Franchise Board Lloyd s 3

4 What the FCA have said Clive Adamson 19 April 2013 The Importance of culture in driving behaviours of firms and how the FCA will assess this What do I mean by culture? Culture is like DNA. Our approach today is to draw conclusions about culture from what we observe about a firm joining the dots rather than assessing culture directly Lloyd s 4

5 What the FCA have said Clive Adamson 20 March 2014 A sustainable conduct environment fair treatment of customers is not, in my view, something that can be reduced just to a risk to be managed While I support a strong three lines of defence model, it seems to me that the conduct question is more a business model and cultural challenge and therefore should be firmly rooted in the first line. It is certainly my view that having the right culture is essential for achieving good conduct performance. This is not, though, a fluffy view of vague corporate aspirations or value statements, but a need for a more hard-edged embedding of business practices that define how decisions will be made through the firm at critical points of engagement with customers or dealing in markets. Lloyd s 5

6 What the FCA have said From what we see, there are key drivers that set and re-enforce this conduct-focused culture with the most important being clear and ongoing leadership from the top of the organisation, constant re-enforcement, hiring practices, incentive structures [x4], effective performance management, penalties for not doing the right thing all of which should set the tone for framework for decision making on a day-by-day basis. We also need to find ways of ensuring that the Boards and non-executive directors (NEDs) in particular are completely engaged in conduct issues and act as a key stakeholder to represent both the interests of the customer and the interest of shareholders. Lloyd s 6

7 What the FCA have said FCA 2014 / 2015 Business Plan 1 April 2014 Culture change does not happen overnight Culture, looking at their business models to ensure that consumers are at the heart of what they do and that remuneration practices do not incentivise employees to put quick profit first, at the expense of consumers getting products and services that meet their needs or of the integrity of the market. What it isn t Prioritising profits over consumer interests A tick box approach Disclosure at point of sale absolves the seller from everything Just complying with the letter of the law Lloyd s 7

8 Culture The real culture questions Around here what's really important? Around here who gets promoted? Around here what behaviours get rewarded? Around here who fits in and who doesn't? Lloyd s 8

9 What the standards say about culture Evidence to join the dots CR 2: The role of the board, management and staff The board of a managing agent must lead a corporate culture which pays due regard to the interests of Lloyd s customers and treats them fairly at all times Decisions Presentations to staff Support Regularly discuss conduct risk Agendas Use of MI Good questions and follow up Provide appropriate customer challenge proportionate and fair challenge and input from the perspective of Lloyd s Customer HPR where have little or no experience Lloyd s 9

10 What the standards say about culture Evidence to join the dots CR 2: The role of the board, management and staff Conduct risk objectives set and assessed Conflicts of interest Whistleblowing Lloyd s 10

11 What the standards say about culture Evidence to join the dots CR 3: Product Oversight Group the delivery of appropriate Customer Challenge when judgments need to be made about business model, syndicate business plan whether a particular Product should be sold the names of its members and its terms of reference should be made available to the managing agent s staff and, where appropriate, to its Distributors Lloyd s 11

12 What the standards say about culture Evidence to join the dots CR 7: Product design In providing Customer Challenge consideration might be given to the following questions Imagine that the Product was designed to be sold to a loved member of your family. Would you personally recommend that he or she buys it? Having read the Product Documentation, would you personally be able to explain the key aspects of the Product to the proposed Lloyd s Customer? Would you expect to be content to explain the performance of the Product on consumer programme on primetime television? Lloyd s 12

13 What the standards say about culture Evidence to join the dots CR 17: Training provide appropriate training about Conduct Risk Board Product design Underwriters Claims and complaints Lloyd s 13

14 Culture as part of the broader conduct framework Culture is one part of the conduct framework needed to meet the requirements of the minimum standard Culture Customers Governance & control framework Strategy & business model Products, distribution & service Conduct MI Firms should consider how their conduct programme evidences progress against each of these elements Lloyd s 14

15 Culture - some practical considerations For Culture, it may be helpful to think about 4 areas in particular: 1. Leadership and authorities Corporate Values: how effectively do the firm values, code of ethics and mission promote right attitudes and behaviours in practice? Tone from the Top: To what extent do the firm leaders promote right behaviours while seeking to achieve the firm s business strategy? What sort of relationship are they seeking to achieve with the regulators? Governance & Policies: To what extent does the firm s risk governance and policies clearly apportion accountabilities? Evidence / examples: briefings, presentations, and communications from the CEO and other senior executives which demonstrate commitment to achieving positive customer outcomes; decisions to change the way things are done to improve the outcome for customers. 2. Incentives and rewards Compensation: To what extent are conduct risk management and behaviours taken into account in determining compensation? Consequence Management: To what extent are employees willing and able to report bad news? Career Management: To what extent are conduct risk management requirements built into recruitment and people development? Evidence / examples: successful management of conduct risk, and/or achievement of positive customer outcomes, is reflected in objectives for senior executives. Ernst & Young LLP 2014 Lloyd s 15

16 Culture - some practical considerations 3. Training and skills Learning & Development: To what extent do firm s training programmes promote good attitudes and behaviours? Knowledge Sharing: To what extent do employees share and communicate good practice across the organisation? Competency: To what extent are the right resources and skills in place to support the delivery of the strategy? Evidence / examples: conduct risk training programme designed and rolled out - covering the Board through to business operational staff, based on Training Needs Analysis to identify role-specific courses. 4. Risk, Compliance and reporting Risk & Compliance Functions are Risk and Compliance seen as supporting effective conduct risk management, or as a constraint on the business? Risk appetite: To what extent is conduct risk appetite understood and reflected in decision-making? Risk Reporting: To what extent does MI reflect material conduct risks, and emerging risks? Evidence / examples: control functions are sufficiently resources in terms of number of resources and their skillset; Risk and Compliance are involved at early stage in product decision making; conduct reports and dashboards that highlight conduct failures or outliers (rather than rate everything as green ) Ernst & Young LLP 2014 Lloyd s 16

17 Break-out session [30 mins] Lloyd s 17

18 Practical Steps to evidence culture Board Board conduct training sessions held Board discussed and agreed its approach and strategy to the management of Conduct Risk what is and what is not acceptable? Director designated as having particular responsibility for the oversight of conduct issues Established or designated a Product Oversight Group and agreed its terms of reference Reviewed and discussed a problematic product and agreed on appropriate actions Reviewed and discussed the appropriateness of Sales Incentives for key HPR products Set appropriate conduct risk objectives for directors Identified good conduct practice elsewhere in the group and implemented that for the syndicate Considered the question how could better Product Design help the business attract and retain more business? Lloyd s 18

19 Practical Steps to evidence culture Chief Executive Commitment to conduct culture set out in presentation to staff Commitment to conduct culture set out in presentations to key Distributors Joined a meeting of the Product Oversight Group Had lunch with the underwriters and members of the claims and complaints teams to discuss their perspectives on a range of HPR products Personally reviewed the most complained about product and discussed findings with the relevant underwriter Personally contacted a number of complainants to discuss aspects of their complaint and its resolution Considered whether would personally recommend the most profitable HPR product to a friend? Personally purchased and then cancelled a syndicate product from a call centre Set up a staff or Distributor rewards scheme for suggestions to improve the fair treatment of Lloyd s customers Lloyd s 19

20 Practical Steps to evidence culture Executive Director Commitment to conduct culture set out in presentation to directorate Presented the board on the conduct issues arising out of the directorate Participated in a training session with staff on Conduct Risk Set appropriate conduct risk objectives for staff Identified good and bad conduct practice within directorate and fed back findings through POG Spent a day at a call centre / customer services centre / key Distributor Personally purchased and then cancelled a syndicate product from a call centre Joined a meeting of the Product Oversight Group Considered the question how could better Product Design help my directorate? Identified good conduct practice adopted by my peers in other organisations and implemented them for the syndicate Lloyd s 20

21 Practical Steps to evidence culture Non-Executive Director Made a call to a call centre mystery shopped and fed back to board Spent a day at a call centre / customer services centre / key Distributor Had lunch with the underwriters and members of the claims and complaints teams to discuss their perspectives on a range of HPR products Having read the product documentation, considered whether could explain key aspects of product of a HPR product? Reviewed an audit report on a coverholder that sells the most products on behalf of syndicate Attended an external training session on conduct issues Considered the lessons to be learned from a Financial Ombudsman decision which found against the syndicate Received briefing from Product Line heads where underwriters set out the main product risks in their book of business Lloyd s 21

22 Practical Steps to evidence culture Product Oversight Group Provided names of POG members to staff Provided names of POG members to distributors Made a presentation to the board on the work of the POG Reviewed and discussed the list of all HPR and Addon Made use of a focus group or market research to help assess the suitability of a Product and its Product Documentation Reviewed product with the highest rate of denied claims and considered appropriateness of Product Design Received a presentation from Lloyd s on the performance of the managing agent s complaints handling Lloyd s 22

23 Practical Steps to evidence culture Underwriter Attended and contributed to a conduct training session Sought the input of a customer or Distributor into the design of a Product Sought the input of POG into the design of a Product Discussed the performance of HPR product with counterparts in the claims and complaints departments Reviewed the output of a Product Review Considered the question how could better Product Design help me attract and retain more business? Personally contacted a number of complainants to discuss aspects of their complaint and its resolution Considered whether would personally recommend products I underwrite to a friend? Personally purchased and then cancelled a syndicate product via the internet Lloyd s 23

24 Completing the Self- Assessment Template < Picture to go here > Lloyd s 24

25 Planning for compliance with the minimum standards Self assessment template launched w/c 10 November (TBC) 6 weeks to complete and send back to Lloyd s Template will be accompanied by example guidance on lloyds.com Self-assessment of compliance against the standards will be required for 4 points in time: Position as at 1/1/15 Expected position at 31/3/15 Expected position at 30/6/15 For CR13 (MI) position at 1/11/15 Any parts of the standards not met will require clear actions to close the gap Lloyd s 25

26 Planning for compliance with the minimum standards Firms need to plan ahead for activities into Complete self assessment template Complete embedding actions to meet minimum standards Complete actions related to MI Any gaps in the conduct framework identified in self assessment template should be included as part of programme activities in 2015 In identifying actions to close gaps, firms should distinguish between design, implementation, and embedding activities Lloyd s 26

27 Planning for compliance with the minimum standards Consider the following lessons learned: Design and implementation activities to enhance the conduct framework should be overseen by appropriate project governance structure Plans for design, implementation and embedding should be in place to evidence progress made and actions still to complete Consider testing of new processes (e.g. product design approvals) as part of implementation / embedding Work out potential resource issues and constraints around key milestones (such as binder renewals) Lloyd s 27

28 AOB Q&A MI Recording product risk Q&A Lloyd s 28

29 Lloyd s 29