"Where non-financial misconduct is allowed to persist it can undermine trust and confidence and create a culture where wrongdoing goes unchallenged, causing harm. "
- Sarah Pritchard, executive director of markets and international at the FCA
A new survey of over 1,000 firms by the FCA has found that the number of non-financial misconduct allegations reported has increased by 72% between 2021 and 2023.
Allegations have increased from 1,363 in 2021 to 1,670 in 2022 and 2,347 in 2023.
The survey aims to better understand how investment banks, brokers and wholesale insurance firms record and manage allegations of non-financial misconduct, such as bullying, sexual harassment and discrimination.
However, the FCA noted that the data "could be read in different ways". For example, it says a high number of complaints could be an indicator of a healthier culture in which people feel they can speak up, confident they will be listened to, whereas a low reporting rate may indicate the opposite.
In the three years covered by the survey, bullying and harassment (26%) and discrimination (23%) were the most recorded concerns. However, the large 'other' group of concerns (41%) indicates how difficult it can be to categorise issues of personal misconduct.
The FCA found a variety of mechanisms through which firms identified concerns. Some firms were using their internal systems to identify potential issues, although formal processes and whistleblowing were the most prevalent methods of detection.
The findings are being shared to enable firms to benchmark their own reporting against this peer analysis and consider if their processes for reporting and investigating possible non-financial misconduct remain appropriate.
Sarah Pritchard, executive director of markets and international at the FCA, said: "We want this data to support financial firms by providing their management teams and boards with an opportunity to consider if they stand out, and, if so, why that might be. The data requires context and careful interpretation. But in being transparent we hope financial firms can benchmark themselves against their peers.
"Healthy workplace cultures are essential across all the markets we regulate – where non-financial misconduct is allowed to persist it can undermine trust and confidence, and create a culture where wrongdoing goes unchallenged, causing harm.
"We are grateful to see a number of trade bodies engaging with these findings. We look forward to continuing to partner with them to continue to raise standards."
Jill Lorimer, partner in the financial services regulatory team at Kingsley Napley LLP, commented: “The FCA has talked about the importance of non-financial misconduct (NFM) for several years now but is aware that education is a key part of its wider strategy to drive up standards. It views a firm’s culture as absolutely essential to encouraging the right behaviours and indeed helping to identify examples of counter-inclusive behaviour. It is also keen to challenge any remaining concerns that these are purely HR issues rather than issues going to the heart of a firm’s regulatory compliance.
"Today’s survey suggests a growing awareness of what non-financial misconduct is and that regulated firms are supporting and policing reports of NFM in various ways. The FCA will see this as progress on a macro level.
"However, in our experience firms are still working hard, and in some cases struggling, to get things right in what are often complex and nuanced situations. Firms must look both at fitness & propriety and conduct rules. There can be weighty consequences to getting it wrong. It is particularly challenging for smaller firms without significant in-house legal and compliance resource, or indeed a wealth of precedent in the form of previous examples to fall back on.
"Most firms understand by now that the FCA wants to drive change in the financial services sector by bringing behaviour such as bullying, harassment and discrimination into its regulatory net. However, they still need practical guidance on when to engage the regulator and how to navigate this new territory. They urgently need the publication of the FCA’s new rules in this area, which is expected any day now, so that they can review policies and procedures accordingly. Firms are crying out for more granular guidance and hope that the regulator will have taken this feedback on board during the consultation process.
"Nevertheless, today’s data provides an additional helpful source of information to inform firms as to the regulator’s expectations.”
