The recent Financial Conduct Authority (FCA) survey on culture and non-financial misconduct marks a significant change in how firms approach the detection, management, and resolution of such issues. Data from a survey of 1,028 wholesale financial services firms was collected from 2021 to 2023, providing a solid foundation for evaluating the management of non-financial misconduct incidents across various sectors.

The Increasing Trend of Non-Financial Misconduct

The survey shows a consistent rise in reported incidents over three years, highlighting either a growing awareness or an increasing prevalence of non-financial misconduct in the industry. Key findings include:

  • Prevalent Misconduct Types: Bullying and harassment were the most frequently reported types (26%), followed by discrimination (23%). An additional 41% of incidents fell into an “other” category, showing the range of non-financial issues firms encounter. Examples included intoxication, offensive communication, policy breaches, and misuse of gifts and entertainment.
  • Detection Routes: Firms identified incidents through formal processes, such as grievances, and alternative channels, like whistleblowing. Some firms took proactive measures, including market surveillance, to detect misconduct.
  • Outcomes and Disciplinary Actions: Actions were taken in 43% of reported cases, but not all incidents led to disciplinary measures. Severe misconduct incidents, such as violence, were more likely to lead to disciplinary action than other forms, like discrimination.
  • Confidentiality and Settlement Agreements: Wholesale banks reported declining confidentiality and settlement agreements with complainants during the surveyed period, although trends in other sectors differed.

 

The FCA emphasises that contextual understanding of data is crucial, as variations across sectors and firm sizes affect the types and frequency of non-financial misconduct.

The FCA’s Drive for Cultural Improvement

This comprehensive survey offers valuable insights beyond mere statistics; it acts as a benchmark for companies to evaluate their culture and processes concerning industry standards. The FCA emphasises the importance of addressing non-financial misconduct to ensure senior managers and staff meet fitness and propriety standards. A culture that allows misconduct reveals underlying weaknesses in decision-making and risk management, which can ultimately compromise regulatory compliance.

In line with this, the FCA focuses on creating healthy, respectful work environments to protect markets and consumers. The FCA expects that firms will review and, where necessary, strengthen their culture to promote openness, proper risk management, and ethical behaviour.

Taking Action on Culture and Non-Financial Misconduct

The FCA’s findings serve as a call to action for financial services firms to reassess and reinforce their cultural frameworks. Here’s what the FCA expects from firms:

  • Reflect on Benchmark Data: Firms should use the survey data to compare their position relative to industry standards and identify areas for improvement in detecting and managing non-financial misconduct.
  • Foster a Speak-Up Culture: It is vital to encourage employees to raise concerns without fear of retaliation. The FCA found that while many firms have whistleblowing policies, a lack of trust in these systems persists. Firms are advised to review their whistleblowing processes and build a culture where concerns are addressed transparently and fairly.
  • Strengthen Board Oversight and Governance: The FCA noted that many firms, particularly larger ones, do not provide sufficient oversight of non-financial misconduct. Boards should routinely receive management information (MI) on non-financial misconduct to monitor trends, guide decisions, and implement effective solutions. Governance structures should include committees addressing the outcomes and disciplinary actions related to misconduct cases.
  • Implement Comprehensive Policies: Not all firms had current whistleblowing or disciplinary policies. The FCA expects firms to have updated, accessible policies that outline clear processes for identifying and addressing misconduct. Regular reviews can ensure these policies remain effective and adapt to new types of misconduct.
  • Review Remuneration Adjustments: The FCA’s survey found that remuneration was rarely adjusted following incidents of misconduct, and when it was, it affected unvested variable pay. Firms should consider reviewing their remuneration policies to ensure they align with their commitment to a culture of preventing misconduct.
  • Utilise Regulatory References: With 92% of firms including non-financial misconduct in regulatory references, firms should assess how they provide and update references when hiring senior managers or certified staff. The FCA advises firms to exercise caution in hiring individuals with known incidents of non-financial misconduct as part of their due diligence in maintaining a fit and proper workforce.

The Role of Confidentiality and Settlement Agreements

The survey comments on how firms might utilise confidentiality and settlement agreements. While these agreements have valid commercial reasons, the FCA emphasises that they should not prevent individuals from making disclosures in the public interest. Firms should be aware that confidentiality clauses must not obstruct whistleblowing or transparency with the FCA.

The FCA’s Commitment to Enforcement

The FCA intends to use this survey data to guide its supervisory efforts, identifying outliers within industry groups and engaging with trade associations to set higher standards across sectors. Firms that fail to adhere to the FCA’s principles face increased scrutiny and, where necessary, enforcement actions.
Firms must reassess their governance, policies, and board-level engagement with non-financial misconduct issues. Addressing cultural weaknesses is no longer optional; it is a regulatory expectation that, if ignored, could lead to significant consequences.

Conclusion: Taking Responsibility for a Healthier Culture

The FCA’s findings highlight the importance of a well-managed, ethical culture within financial services. Firms are expected to comply with regulatory requirements and actively foster a safe and supportive work environment. By improving detection, oversight, and reporting systems, firms can meet regulatory standards while building a stronger, more transparent, and trustworthy culture. This approach ultimately benefits employees, clients, and the entire financial services industry.

How C&G can help

We are well placed to assist firms with their compliance framework. We offer ongoing advice, health checks on existing controls, and bespoke training solutions to firms. Contact us with your requirements if you need assistance in this area.