With all that’s at stake, why wouldn’t you use assessment when selecting for regulated leadership roles?

By Gaëlle Pritchard, Head of Assessment, SH Leadership and Sue Colton, Associate Business Psychologist

Leadership behaviours have been under intense regulatory scrutiny for well over a decade, particularly in the wake of the 2008 financial crisis. In some ways, under the Senior Managers and Certification Regime (SM&CR), the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) now have more sway over certain board appointments than shareholders do.

The Senior Managers Regime states that those at the top level must be FCA or PRA approved before taking up a position and certified at least once a year. A company then assigns each senior manager a ‘statement of responsibilities’ leaving them in no doubt about their obligations. According to FCA guidelines, a company must be satisfied that a senior manager is fit and proper to perform the role.

Grey areas remain

Even with all of this, there remain some grey areas that firms have to negotiate themselves without strict guidance from the regulators. There are no hard and fast rules around the criteria boards should apply to new C-suite appointments. There are no guidelines about how they do this. Nor is it clear what would constitute a senior manager not being fit and proper to perform a role.

On the other hand, a business contact who until recently worked for one of the regulators commented that they are becoming more systematic about asking applicable firms for evidence of the processes they followed when appointing someone to a regulated role. The onus, therefore, lies very much with the organisation to:

1. Put a robust senior manager selection process in place
2. Consider using behavioural competency frameworks to assess the suitability of potential candidates for senior roles
3. Document everything in a manner that is easy to share with the regulators

How to develop and evidence a more robust process

Psychometric assessments offer evidence-based ability and behavioural profiling of individuals which provide an excellent layer of additional robustness on top of existing selection processes.

Exhibiting certain behavioural competencies is vital in regulated roles, hence the value in creating a behavioural competency framework at the outset. At its simplest, this framework defines the visible behaviours and attitudes needed to do the role rather than the technical expertise required.

Behavioural competencies encompass such things as problem solving, decision making, thought leadership, communication, customer focus, etc. Looking at the example of a senior executive, it is typically important that they exhibit the ability to be a strategic leader, to drive and deliver value to the business, that they can promote and seek process improvements, that they can future-proof the capability of their team, and so on.

For more on the importance of behavioural competency frameworks, check out our previous article on the topic. Assessing for behavioural competencies provides an extra level of validation for candidates who might look like an ideal fit on paper but then turn out to lack the behaviours the regulators have identified as necessary for success.

Evidence is crucial

As we’ve seen, in a regulatory regime where grey areas persist, being able to show evidence of a robust process is, in regulatory terms, just as important as feeling confident you have made the right choice. It certainly offers another layer of comfort.

If your selection process is able to weed out candidates who exhibit too few of the behaviours needed to satisfy the responsibilities called for by the regulators, you are far less likely to employ someone with a high-risk profile that might get you into hot water down the line. To put it another way, being able to avoid hiring someone who might succumb to adversely impacting opportunities, is one of the scenarios that the SM&CR is trying to mitigate.  

No selection process is infallible, so there is always a risk that you might select a candidate that exhibits inappropriate behaviours once established in the role. However, if that proves to be the case, then the evidence from the on-boarding assessment process will still support your due diligence conducted at the time.

Another benefit of using trait assessment is that, if some behaviours prove concerning during the assessment, you or your assessors can create personal development plans designed to help overcome these. This will in turn increase the individual’s chances of success in the role in the eyes of the regulator. 

Regular board appraisals

Psychometric assessments can also help when conducting regular board appraisals. We’ve already seen how senior managers in regulated roles must be certified once a year. In fact, the UK Corporate Governance Code (2018) recommends that FTSE 350 companies engage “an external and objective third party” to carry out an appraisal at least every three years. This should supplement rigorous annual self-assessments.

Behavioural trait assessments are excellent for this purpose. They can be used to assess multiple individuals on a board, highlight any behavioural or skills gaps, and create a board development plan comprised of clear, practical solutions that can be actioned easily.

Technical expertise alone is no longer enough

While we have been talking largely about financial services companies, everything we’ve mentioned here is relevant to all FCA regulated firms as of March 2021. These include including investment managers, product distributors, insurance brokers, and consumer credit providers, amongst others. Indeed, the Institute of Actuaries is currently seeking feedback on a draft competency framework for the position of chief actuary which emphasises behaviours alongside the technical competencies.

In other words, in most senior leadership positions, the onus from regulators and industry bodies is on complying with a proper set of behaviours. In some cases these are legal requirements. In others they are seen as merely desirable. However, the trend is the same: the behaviour of senior leaders is increasingly seen as being as important – and in some cases more important – than technical competencies.

So when all is said and done, why wouldn’t you want to create the more robust and evidence-based approach to recruiting and developing key roles that assessment can offer?

Please call Sue Colton, Director of SJC Consulting on 0780 3137820 or email: sue@suecolton.co.uk