A key observation drawn from the FSB stocktake in Phase 1 was how the relationship between governance frameworks, culture and conduct mutually influence one another in both positive and negative ways. A culture that values appropriate conduct can reduce incidents of misconduct, including by supporting and reinforcing governance frameworks. Conversely, a culture that tolerates or rewards misconduct or drives misconduct underground can undermine the effectiveness of those frameworks and harm firms, consumers and markets. Thus, understanding the elements of culture that can influence governance frameworks is important because they have a bearing on the likelihood that misconduct will occur. These influential elements of culture are as follows:

• The leadership of a firm, which sets the organisation’s direction and the tone from the top and thus, through role modelling, influences the behaviour of staff;

• The decision-making process, including how decisions are made, challenged and communicated; and

• The values and behavioural norms of the firm, which collectively reflect and support the firm’s purpose and its activities.