Member Article

The FCA has published the results of its culture and non financial misconduct survey. Here are some points to note.

Key facts:

• The FCA surveyed regulated wholesale financial services firms asking questions about incidences of non-financial misconduct and the firm’s policies and procedures relating to firms’ culture.
• This is the FCA’s first comprehensive non-financial misconduct data gathering exercise, providing an initial baseline assessment of behaviours in the industry over a three-year period.
• The survey had a 96% response rate from the 1,028 regulated financial services firms surveyed.
• The survey’s key findings include:
  • Non-financial misconduct incidents increased over the period, with wholesale banks having the highest number of reported incidents in the 3 years;
  • Wholesale banks had the lowest proportion of reported sexual harassment cases, but a greater proportion of discrimination cases;
  • Bullying and harassment and discrimination were the most recorded concerns;
  • Reports of ‘other’ non-financial misconduct included intoxication, offensive language, data protection and IT security breaches, and misuse of expenses or gifts.
  • Incidents involving the possession of illegal drugs, sexual harassment and violence were most likely to lead to dismissal;
  • Discrimination had the highest percentage of incidents resulting in either a settlement or confidentiality agreement, while they were only infrequently used for sexual harassment or intimidation;
  • Almost 40% of respondents stated that a board or a board level committee did not receive management information (MI) about non-financial misconduct;
  • A third (33%) stated they have no formal governance structure or committee that decides the outcomes and disciplinary actions for those involved in non-financial misconduct cases; and
  • Not all firms surveyed had whistleblowing or disciplinary policies.

Key takeaways:

• The FCA remains focused on continuous improvement of the culture of regulated firms, requiring firms to properly assess the fitness and propriety of certified staff and assuring the fitness and propriety of senior managers.
• The FCA wants boards to use these survey results as a catalyst to act on issues of non-financial misconduct that can lead to poor working cultures.
• In recent times, the FCA has responded to the Treasury Select Committee’s Sexism in the City inquiry, sent a letter to the TSC and issued sector letters to wholesale banks, brokers and insurers. It is clear it is trying to move the needle on culture in the city.
• By the end of the year, we expect the FCA to publish its new policy framework designed to clarify its expectations around non-financial misconduct.
• Firms will likely have around 12 months to implement any necessary changes.
• The framework will establish minimum standards and give firms a better understanding of what is expected of them in this area from a regulatory standpoint.
• Now is the time to make sure that non-financial misconduct is firmly on firms’ agenda. Boards and senior management should ensure they are receiving appropriate MI.
• Robust processes, systems and controls are vital for mitigating all types of risk, including financial and non-financial misconduct. They are most effective when embedded within a culture that values integrity and accountability.

 

 

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