The Financial Conduct Authority's senior managers regime, introduced in 2016, aimed to clean up behaviour in the finance industry after banks were fined billions of pounds for trying to rig interest rate benchmarks and currencies.

This has tried to "change the tone at the top" of finance firms by making senior management directly accountable for specific activities or misdemeanours.

Firms must keep "regulatory" references of senior staff to make it harder for those with a history of poor conduct to switch to another company, known as "rolling bad apples".

"The majority felt that the industry had some way to go to improve the quality and timeliness of references," the FCA said in a "stock take" on Monday of its senior managers regime.

The FCA said firms said the "tone at the top" was stronger, but they were finding it hard to measure culture. They also appeared more risk averse when launching new products.

Bankers had warned the watchdog that the regime would make it harder to recruit non-executive directors and senior managers and accused regulators of wanting "heads on sticks" after too few individuals were punished during the 2008 financial crisis.

"Some firms told us that there was a culture of fear during the early days of the regime. However, this has now largely dissipated," the FCA said in its stocktake.

Regulation consultancy Bovill said a freedom of information request showed that the FCA was pursuing 19 investigations under the regime.

But only one individual, Barclays CEO Jes Staley, has been punished so far under the rules, when he sought to identify a whistleblower.

Britain ditched plans to force senior managers to prove they were not guilty of a rule breach under the regime. Instead, senior managers must show they took reasonable steps to avoid a breach.

"With the burden of proof firmly on the FCA to show wrongdoing, it appears that the hurdle may be too high," Bovill said.

The FCA said on Monday it would not provide an exhaustive list of what it means by reasonable steps, and that it looked to senior managers to nurture healthy cultures more broadly.

(Reporting by Huw Jones. Editing by Jane Merriman)

By Huw Jones