08 Oct Organisational Culture: A Strategic Imperative and Regulatory Touchstone
Culture as Strategic Asset – or Regulatory Risk
Strong organisational culture enhances performance, innovation, and stakeholder trust. Studies have noted its importance to businesses, but also observed that there is often a large gap between the stated values of a firm and the lived behaviour.1 The message from Financial Services Regulators both in Guernsey and elsewhere is clear: culture matters and weak or poor culture undermines the financial services firm’s compliance and does little to combat more general misconduct. Regulatory controls may exist within a firm — but without cultural reinforcement, they can be bypassed. In addition, misaligned incentive structures, siloed compliance functions, or leadership that signals “results at any cost” create fertile ground for misconduct. While the focus of this article is on regulatory risk and financial services firms, the issue of culture is equally applicable to non-financial services businesses.Culture is more than Words
Recent research2 indicates that many leaders focus on the messaging of culture with the role out of refreshed values, commissioning posters, launching emoji packs, or scheduling empathy workshops or team bonding/away days. While this is done with the best of intentions, when the symbolic efforts aren’t accompanied by a shift in leadership behaviour, employees will not feel inspired or change their behaviour, they will disengage.
Employee trust, engagement and retention do not improve within an organisation unless the culture being espoused is lived. Meaning that on a daily basis, the culture should be lived in how the firm is run. This is evidenced in numerous ways including in the way decisions are made within the organisation, how is feedback given and even how meetings are run.
The levers that change culture are: Power (who decides and who is listened to), Risk (what leaders are willing to lose to live values), and Modelling (what behaviours consistently demonstrated).
The reality is that culture is a core risk dimension. Effective alignment across HR, Risk, Compliance, and Audit is essential. Firms must measure, integrate, and govern culture proactively to improve decision-making and prevent systemic failure.
The Regulator’s Cultural Perspective
Our understanding that a firm’s culture drives its behaviour is nothing new. However, the increased focus by regulatory bodies in linking failings of firms and individuals (during enforcement actions) to the wider culture of a firm is more recent.
William Mason, the Director General of the Guernsey Financial Services Commission (GFSC) spoke about Ethics in Governance as far back as 2014, even if the references to corporate culture were somewhat muted.3
More recently the UK Financial Conduct Authority (FCA) has been strongly indicating its interest in the culture of regulated firms by introducing the Consumer Duty as well as through the FCA’s wider external communications. The FCA’s COO Emily Shepperd recently stated that “we do care about culture as it informs conduct and that is what we regulate”. Ms Shepperd also highlighted the power of language in shaping culture—leaders introduce terms that quickly becomes part of the organizational culture and noted that it is often the tone from the top which accelerates cultural change.4
Regulatory Evolution: Culture as Governance
The FCA now regards culture as a key supervisory issue. In particular the FCA’s Consumer Duty requires firms to prioritize good customer outcomes in design, delivery, and evaluation. This mandates cultural alignment from the board down and, consequently, the FCA examines and assesses how a firm’s culture underpins outcome delivery. Increasingly, it will examine the wider cultural health of a firm, including trust, diversity and misconduct patterns, to show indicators of firm risk.
While the GFSC has not been as forthright in stating its reliance on the culture of a firm in a supervisory context, the undercurrent in Public Statements and tonal messages over the last decade, as well as more explicit references recently, brings us to the same position. Regulators are increasingly focusing on culture and its role in governance of a firm.
While some enforcement actions are considered below, a more extensive review of regulatory enforcement actions clearly confirms that culture is not an abstract concept and that cultural failings can lead to the regulatory failings which firms are sanctioned for. Ultimately the culture of a firm is revealed in numerous ways including in hiring decisions, oversight, transparency, and the treatment of risk. Boards and senior managers must take ownership, align culture with regulatory expectations, and resist commercial pressures that erode integrity.
Real-World Examples of Cultural Failings
The reason why regulators are so interested in cultural can be shown from some prominent failings by financial services firms. A few examples in the financial services sector are set out below:
1. Binance prioritized aggressive expansion over regulatory oversight (primarily AML breaches), ignoring registration requirements and allowing illicit transactions. This cultural stance led to USD 4.3 billion in U.S. fines, C$6 million in Canada, as well as criminal prosecution including the jailing of its CEO.
2. A Swiss bank’s decade-long tolerance of high-risk client relationships and inadequate AML procedures culminated in a FINMA fine of CHF 4 million. Governance instability and cultural inattention allowed risk to persist unchecked.
3. A prominent UK bank maintained a relationship with a high-risk entity despite red flags being known prior to entering into the relationship resulting in an £42 million FCA fine. Cultural weakness was evident in that compliance concerns were overridden by commercial imperatives.
4. A Guernsey Administrator was fined for failings primarily stemming from financial crime deficiencies as well as an ineffective board due to high turnover. This was following a private equity takeover which forced aggressive cost-cutting, understaffing of compliance, and governance instability.
Early Warning Signs: Cultural Red Flags
Some early warning signs of poor culture include:
– Leadership which normalises rule-bending or avoidance of compliance.
– Weak or sidelined compliance functions.
– High turnover in governance or control functions (or high turnover generally).
– Ongoing tolerance of non-financial misconduct.
– Staff lack psychological safety to speak up.
– Misalignment between purpose of the firm and its operations.
– Incentives favouring profit over integrity.
– Parent company culture overriding local board decisions or local regulatory norms.
Measuring, Managing, and Sustaining Culture
To govern culture effectively, organisations should:
– Define values as actionable principles, not slogans.
– Establish metrics: misconduct reporting, sentiment surveys, inclusion.
– Institutionalize board oversight of cultural KPIs.
– Empower compliance teams with resources and independence.
– Link incentives to how performance is achieved.
– Use diverse voices to counter groupthink.
– Treat misconduct as a cultural indicator, not an isolated violation.
Trajectory of Cultural Change: Strategic Renewal
Sustainable cultural transformation requires:
1. Board accountability for cultural health.
2. “Living” the cultural values
3. Integration of values in talent acquisition and promotion.
4. Regular reporting of cultural metrics.
5. Autonomous control functions.
6. Tangible performance incentives tied to integrity.
7. Transparency in incident response and remediation.
8. Diverse governance to encourage challenge.
9. Sustained leadership messaging, not episodic interventions
Culture as Differential Advantage
Firms with culture anchored in integrity reap numerous benefits including:
– Better employee trust and retention.
– Stronger consumer and regulator confidence.
– Resilience in innovation and disruption.
– Fewer regulatory incidents and greater opportunity to correct prior to enforcement.
Conclusion: Culture in Motion
From Binance’s collapse to the Guernsey firm’s imposed culture gaps, the message is unmistakable: culture is governance in action, and regulators are enforcing it as such. This requires boards to elevate the firm’s culture and live the culture they want the firm to have. In today’s landscape, culture is no longer optional—it is essential.
How can ConsultGC Help
ConsultGC helps financial services firms turn culture and conduct expectations into day-to-day practice. We run board and ExCo workshops to reset decision rights and escalation paths; review committee papers, minutes, and challenge to strengthen governance; align remuneration with conduct and customer outcomes; and design whistleblowing and “speak-up/listen-up” mechanisms that actually prompt action. Our team builds practical MI for culture and conduct (e.g., psychological safety, issue closure, complaints, KYC quality), streamlines change calendars and coverage models to cut burnout risk, and coach managers on feedback and conflict. We also map policies to GFSC/FCA requirements, prepare firms for supervisory engagement and enforcement remediation, and test outsourcing oversight and third-party controls. The result: clearer accountability, faster issue resolution, better customer outcomes—and evidence your leaders can show regulators and stakeholders.
1 Article “Corporate culture: Evidence from the field” from the Journal of Financial Economics 146 (2022) 552-594.
2 Article “To Change Company Culture, Focus on Systems—Not Communication” by Benjamin Laker, Chidiebere Ogbonnaya, Yasin Rofcanin, Tomasz Gorny and Marcello Mariani. Published in the Harvard Business Review on 25 August 2025.
3 Key Note Speech “Ethics in Goverance” given by William Mason at the annual ICSA Conference 2014.
4 “From Zeroes to Heroes: How culture in financial services can change for everyone’s benefit”, Speech by Emily Shepperd, Chief Operating Officer and Executive Director of Authorisations, delivered at City and Financial Global’s 8th Annual Culture and Conduct Forum for the Financial Services Industry (28 November 2022).