Non-Financial Misconduct: The FCA is using data to drive change | Insights

Authors:

Sarah Lambert-Porter , Amanda N. Raad , Eve Ellis , Nitish Upadhyaya

The FCA continues to beat the drum on non-financial misconduct (NFM), which includes bullying, discrimination, and sexual harassment or other misconduct. Earlier this month we highlighted the FCA’s plans to release new measures to bring NFM within its regulatory framework by the end of the year, which will enable it to investigate and take enforcement action against individuals and firms in relation to NFM.

To inform its approach to the above, the FCA launched its first ever NFM data collection exercise in February 2024 – it compelled 1,028 regulated firms (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.

In a nutshell:

On Friday (25 October), the FCA released its analysis of the survey data. While acknowledging that data can be read in many ways, the FCA urged firms to benchmark their own data against the survey data and use it to take a hard look at what it reveals about their culture and their processes for detecting/receiving reports and then investigating possible NFM.

Snapshot of notable findings:

NFM incidents

Overall increase of 40% over the period (2021 - 2023)
Breakdown by type:

23% = Discrimination
26% = Bullying & harassment
41% = ‘Other’ NFM

* To reflect the diverse nature of NFM issues, firms defined the ‘Other’ category themselves. Firms’ responses in this category included cases of violence or intimidation, substance or alcohol misuse, data protection breaches, offensive/inappropriate language, etc.

Governance findings:

Significant portion of firms without a formal governance structure for deciding on outcomes and/or disciplinary actions for NFM, and/or without board/top level visibility or management information about NFM matters
Not all firms had whistleblowing or remuneration policies compliant with FCA rules in 2024

Methods of detection:

56 - 70% = Grievance or similar formal escalation processes
6 - 32% = Whistleblowing (most common at banks)
1 - 10% = Surveillance tools (e.g. email/call monitoring)

Use of confidentiality or settlement agreements:

Most common for Discrimination cases (16% end in settlement, 10% in confidentiality), followed by bullying/harassment (7% end in settlement, 3% in confidentiality) and sexual harassment (3% end in settlement, 2% in confidentiality)
Overall usage trend is unclear, but use in the banking sector declined (by around 50%)
FCA is clear that these cannot be used to prevent public interest disclosures to the FCA

Outcomes (all NFM incidents):

Disciplinary action:

Disciplinary action or similar:

in 43% of cases (including cases ultimately not upheld)
in over 70% of cases when complaints were upheld

Not upheld:

62% of Discrimination cases
47% of Bullying & harassment cases Overall, a very low number of incidents (1-2%) were not investigated

Not investigated: 1 – 2%

Most common result for: sexual harassment (64% of cases) and violence/intimidation (73% of cases)
Most used types: written warnings and training and coaching
Least used type: remuneration adjustment – when used, it was most often against unvested variable pay, rather than fixed salary adjustment or clawback

Dismissal: most common outcome for cases involving drugs (21%), sexual harassment (22%), and violence/intimidation (21%)
Verbal warnings: predominantly used for ‘Other’ NFM cases (24%)
Regulatory reference note: increasing trend, 92% of cases (87% of firms updated previously provided references)
‘Fit and Proper’ assessment impact: increasing trend, 93 people impacted, most commonly in cases of sexual harassment or ‘Other’ NFM

What you should do:

Benchmark your firm’s data on NFM reporting and management of NFM against the survey data (for your sub-sector and overall). The FCA expressly urged firms to do this!
Actively engage with and discuss NFM issues at board and senior management levels, including by ensuring that:
- Boards and management teams receive the data needed to assess and make necessary improvements to (i) culture, (ii) how the firm detects and manages NFM risks, and (iii) how the firm addresses NFM. This should include particular focus on the FCA’s survey results, your own benchmarking, and ongoing management information flows.
- The firm has a robust and formal governance structure around NFM, including responsibility for the NFM detection/reporting and investigation framework, and oversight of investigations and outcomes. This governance structure should involve appropriate stakeholders at relevant points, and be continually informed by data.
- NFM remains a routine priority and recurring agenda item for board/senior management meetings.
Use relevant data and your benchmarking results to drive ongoing critical assessment and enhancement of your firm’s NFM framework (i.e. policies, procedures, and systems and controls for detecting, investigating, and remedying NFM allegations promptly and fairly), and ensure that it complies with regulatory requirements in all applicable jurisdictions. In tune with the FCA, the US DOJ has just issued updated guidance on how it will assess compliance programs – a key DOJ focus is whether firms are adapting and measuring the effectiveness of their compliance frameworks.
Consider what the data says about your culture – ensure that you make periodic ‘pulse checks’ to monitor culture and measure the impact of any changes (e.g. through anonymous surveys or independent culture audits). Beware, not all surveys are created equal, and you can do more harm with a badly worded survey or ill-executed (if well-intentioned) audit.

Health warning: data analysis can be dangerous and must be approached thoughtfully

Data can be misinterpreted and send you down the wrong path! The FCA itself recognised the pitfalls of interpreting data in isolation. By way of example: a higher incidence of cases may be indicative of an open culture and/or a sensitively calibrated reporting and detection system, but may equally indicate a serious culture issue. A chunk of the early part of the survey period covered the pandemic period when restrictions were in place, which likely skewed results.

Firms also need to be mindful of data practices that may adversely shape their data collection and interpretation efforts.

Dealing with NFM and culture-related data is an inherently complex and specialised area – it’s one in which our R&G Insights Lab, a multidisciplinary team of data experts and behavioural scientists, really thrives and stands out! Learn more about how we help clients with this here.

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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