Although the SMR is only a year old and we are all learning by doing, there are encouraging signs that it is making a difference. 7  See FSB press release at: http://www.fsb.org/2017/02/fsb-assesses-implementation-progress-and-effects-of-reforms/. Additionally see FSB “Stocktake of efforts to strengthen governance frameworks to mitigate misconduct risks”, forthcoming March 2017. 8 The SMR came into effect on 7 March 2016. Insurers are required to meet similar standards under Solvency II and in future, the SMR will apply to them directly, as it will to other participants in FICC markets. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  For firms, the SMR is clarifying and improving governance, accountability and decision-making processes. Senior Managers are increasingly focusing on building cultures of risk awareness, openness and ethical behaviour. In the words of one chairman “responsibility for culture has moved to the top of my agenda.”  9  For supervisors, the regime is helping identify weaknesses in governance and accountability, and encouraging the necessary changes. This is particularly true in cases where authority has historically been blurred such as in cross-border banking. Adoption is spreading. Some international firms are voluntarily adopting elements of the SMR’s certification requirements to strengthen their global operations. And the FSB is now explicitly reviewing the merits of such “responsibility mapping”. 10  Recent events  The SMR has also been adopted by the Bank of England. 11  We chose to because our mission demands that  we hold ourselves to the highest standards of governance and accountability.

Internationally, we have catalysed a series of actions at the Financial Stability Board (FSB) that will be presented to the G20 Leaders’ Summit in July. Allow me to review the main elements before concentrating on how codes of conduct and the Senior Managers Regime (SMR) can lift standards and improve culture. Let me be clear at the outset that the Bank of England holds itself to the highest standards. In that spirit, I will extend my remarks to review some lessons the Bank can learn from the events surrounding Charlotte Hogg’s resignation, and the steps we are taking in response. The UK Action Plan to improve conduct  Our action plan for the financial system begins with stronger deterrents. In the UK, important steps have 5  been taken to strengthen laws and regulations, though some gaps remain, most notably in the FX market. But authorities cannot and should not try to legislate for every circumstance, watch every transaction, or anticipate every market innovation. So while fines and sanctions have roles in deterring misconduct, they will not, on their own, bring about the cultural change we need. We must move from an excessive reliance on punitive, ex post fines of firms to greater emphasis on more compelling ex ante incentives for individuals, and ultimately a more solid grounding in improved firm culture. This includes reducing opportunities for bad behaviour, for example, by overhauling the regulation of key benchmarks in FICC markets. More fundamentally, it requires compensation rules that align better risk and reward.