The FCA’s New Measures on Non-Financial Misconduct Are Coming – and Soon!

Sharp-eared attendees at the FCA’s 2024 Annual Public Meeting on Thursday (26 September 2024) will have been reassured by a statement by Sarah Pritchard (the FCA’s executive director of supervision) about the UK financial regulators’ much-anticipated new measures to bring non-financial misconduct (NFM) firmly within its regulatory framework – the FCA anticipates releasing those measures before the end of this year. 

We have some tips on how to get ahead of developments below.

Some background

The prevalence of NFM (which the FCA considers as encompassing behaviour such as bullying, discrimination, and sexual harassment or misconduct) has been a serious and sensitive issue in the financial services sector for many decades, and one to which many have argued that the UK’s financial regulators (the FCA and the PRA) have been slow to respond. While the FCA has consistently asserted that NFM falls within its regulatory jurisdiction, its ability to intervene meaningfully has been stymied by the limited instruments in its regulatory toolkit. 

To address this frustration, almost exactly a year ago, on 25 September 2023, the FCA launched a consultation on its paper "Diversity and inclusion in the financial sector — working together to drive change" (CP 23/20, linked to the PRA’s CP 18/23) setting out a number of proposals, chief amongst which are to:

• Clarify and strengthen the regulators’ expectations of firms in relation to tackling NFM; and
• Incorporate NFM into three key parts of the FCA Handbook and regulatory framework:
  • The Code of Conduct (COCON);
  • The Fitness and Propriety test for employees and senior managers (FIT); and
  • The suitability threshold conditions which firms must meet to be or remain authorised (COND).

These changes will enable the FCA to investigate and take enforcement action against individuals and firms in relation to NFM. 

Notably, the FCA’s consultation paper highlighted its belief that safer and more diverse workplaces will lead to better outcomes for employees, the market, and consumers by supporting healthy work cultures, reducing groupthink, unlocking talent, improving understanding of diverse consumer needs, and all while facilitating competitiveness and economic growth for firms and for the UK financial services sector more broadly. 

The consultation closed in December 2023. As part of its response the FCA has taken some supplementary steps, including:

• Launching a data collection exercise in February 2024: compelling 184 investment banks, 217 commercial insurers, 349 insurance intermediaries, and 288 wholesale brokers to provide information about NFM-related incidents' detection and outcomes (including employment hearings and the use of NDAs), as well as data about the locations and circumstances in which NFM-related incidents have occurred; and
• Issuing a statement that, alongside the consultation feedback, the FCA will take account of the Treasury Select Committee’s March 2024 ‘Sexism in the City’ report (on its inquiry into barriers faced by women in financial services) to ensure meaningful action against NFM in the sector.

The resulting policy statements, updated rules, and related guidance can now be expected in the next three months. 

FCA’s survey of the insurance sector’s approach to NFM 

Following a stark warning by the FCA to CEOs in the wholesale insurance market last September (in which the FCA noted that they had failed to tackle NFM in the sector and needed to do more), in March 2024, the FCA issued a notice compelling firms operating in the Lloyd’s of London market to disclose data about NFM incidents since 2021. This comprehensive survey included 23 pages of questions to elicit data and information about:

• The numbers and types of incidents, how they were detected and recorded, and their outcomes, with particular detail sought as to the use of NDAs; and
• The firms’ broader governance structures and procedural frameworks for investigating, escalating, and responding to NFM issues, including their provisions for whistleblowing.

The results of the survey will be published later this year. The insurance sector (which has borne the reputational brunt of a series of high-profile incidents thought to be symptomatic of a widespread culture of misogyny, discrimination, bullying, and sexual misconduct) is likely to be just the start of similar FCA surveys and pressure in other sectors, as the regulator looks to step up its regulatory efforts in relation to poor culture and NFM. 

What should you be doing? 

Beyond waiting for the new FCA measures, firms in the regulated sector should take a leaf out of the FCA’s book, and adopt a similar approach to understanding and tackling issues with culture and NFM in their organisations: collect and analyse the data, and make changes. The FCA has gone back to the drawing board on DEI data because they don’t want it to become a box-ticking exercise. If nothing else, this indicates that firms will need to be more thoughtful about how they go about understanding what is happening within their organisations. 

Here are a few examples of the work we have done for clients in this space:

• Carried out a culture assessment, alongside an internal investigation, after reports of potential bullying and harassment in a particular business unit. Essentially, checking whether there was one bad apple, or more systemic issues. By understanding their people, organisations can put in place remediation measures that have a better chance of working, and present a story of genuine change to the authorities. 
• Planned a data strategy for collecting information, with a focus on gathering the data and human stories on topics the client wanted to understand, to inform discussions – internally and to regulators – about what was actually happening within the business.
• Helped a client launch an employee questionnaire (focused on storytelling) to help them better understand patterns of concern about allegations of sexual harassment. 

Ultimately, you need a nuanced approach to understand and tackle the subtle indicators of culture and NFM-related risks in ways that are effective, consequential, and quantifiable. If you haven’t already, it’s time to get started – the FCA’s focus on NFM will only intensify.

R&G Insights Lab's culture assessments allow you to systematically measure organisational culture and drive change by drawing on the latest developments in scientific research. The Lab's multidisciplinary team of behavioural scientists, regulatory specialists, and data experts work with clients to develop impactful, quantitative, and qualitative assessments and change-initiatives. Get in touch with us to find out more. 

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