Executive accountability is raising concerns – here’s the best response

  • 22 August 2018

Insurance executives are worried. New UK regulations are about to make them personally more accountable than ever before. And 28% of those insurance executives think that by 2022, the greatest risk they expect to face will be personal regulatory sanction because of their firm's compliance failings. So what should they do?

Before addressing their best response, it’s worth spending a moment comparing that 28% figure with other reasons for executive accountability heightening feelings of personal exposure. The survey, by law firm DWF, found that 40% saw the greatest exposure coming from poor financial results and 21% from operational failings, such as data breaches. So compliance failings are up there near the top, over-shadowing even digital. That’s a lot of sleepless nights.

 So what did these UK insurance executives see as their best response to these risks? Two stood out…

  • challenging assumptions and plans at the highest level, for example through having explicit and minute’ed debate at board meetings;
  • having an effective understanding of their firm as a whole.

These are contrasting responses. The first concentrates on executive performance, while the second concentrates on getting to know the firm better. While the first may be of some value, it’s the second that will deliver real impact on the very causes of those compliance failings.

Why your people are doing what they're doing

To be effective, your understanding of the firm needs to get to the heart of why your people are doing what they’re doing. That’s because those compliance failings will largely come from those occasions where your people make decisions out of line with the ethical guidelines that you’ve provided them with.

Those ethical guidelines will include your firm’s code of ethics, the values emphasised by the firm and the way in which you and your fellow executives have been communicating the importance of acting fairly and with integrity. Has this been as regular and clear as your assessment of ethical risks has highlighted for you? Have this been backed up with support and training in how to get those tricky decisions right?

This is addressing the risk of compliance failures on a proactive basis, not a reactive one. Helping people get it right first time, rather than correcting them when it first goes wrong, is what real leadership looks like.

The Right Capabilities for the Right People

And once your people know how to get ethical decisions right first time, you need to then deliver the support that ensures they can sustain this, through the ups and downs, the busy and quiet, the soft and hard market times for your firm. Have you assessed the capabilities of your people when it comes to making decisions in line with regulatory principles like fairness and honesty? The Senior Managers and Certification Regime expects you to have such assessments to hand.

This means understanding whether the scope, depth and focus of your ethics training is right for the compliance risks that your firm is facing. And to do this, you need to understand the language of ethics, and to have a clear vision of the ethical expectations that your people should be working to.

There’s no point relying of the fact that they are all good people in your firm. Most misconduct in corporate settings comes not from bad apples making bad decisions, but from good people making poor decisions.

Beware of Super Compliance

One reaction to the risk of personal regulatory sanction might be to strive for super compliance.  Hiring more compliance consultants or buying in software with even more bells and whistles, may produce a short term impact, but it's also likely to result in some problems being swept under the carpet until the compliance surge loses its momentum. Far better to concentrate on addressing the source of the problem, even if it turns out to be closer to home than you thought.

A lot of what we’ve talked about here in terms of executive accountability is in fact pretty similar to delivering leadership on ethics. It has five key ingredients:

  • know the language of ethics;
  • set a clear ethical vision;
  • support your people in making decisions in line with that vision;
  • remove the hurdles that get in the way of them making ethical decisions
  • set a strong, clear and consistent personal example.

And a lot of what you need to focus on here and now are the main ethical risks facing your firm. That comes from having an ethical risk assessment to work to. You have done one, haven’t you?!?

The FCA could be well ahead

At the moment, the main area of ethical risk, and so the main exposure to compliance failure, lies in how insurance is being priced. The problem for insurance executives is that the FCA could well have better benchmarking data and more informed assessments of pricing tactics, than most insurance executives. Watch this website for more on this soon.

Personal executive accountability in financial services was always on the cards. It will focus minds on the real consequences of executive decisions. Getting those decisions consistently right will be one of the differentiators, both individually and corporately, of the next five years. And that is why leadership on ethics needs to move from the ‘nice to have’ to the core competencies of the people in charge of our sector.