On 25 October 2024, the Financial Conduct Authority (FCA) published the results of its survey to better understand how firms record and manage allegations of non-financial misconduct.

Background

Previously, the FCA published a letter to all regulated Lloyd’s managing agents, London market insurers and Lloyd’s and London market brokers and managing general agents, requesting information relating to incidents of non-financial misconduct. The letter asked for aggregated statistics for the years 2021,2022 and 2023, including the number of incidents, the method by which these were recorded, and the outcome. The letter was not a voluntary request for information. The FCA elected to exercise its powers under section 165 Financial Services and Markets Act 2000 to formally request the relevant data from firms, failure to comply with such a request risked being found in contempt of court. Firms had until 5 March 2024 to respond to the letter. Wholesale banks and wholesale brokers also received letters from the FCA.

Importantly, the letters were the first comprehensive non-financial misconduct survey across these sectors and a significant step for the FCA in understanding the subject matter, providing a baseline assessment of behaviours.

Key findings

The FCA reports that over 1,000 firms responded to its survey, and it found that the number of allegations reported increased between 2021 and 2023.

The distribution of non-financial misconduct types varied by sector although bullying and harassment (26%) and discrimination (23%) were the most reported types of non-financial misconduct across all sectors. There were also 41% of non-financial misconduct incidents reported in the ‘other’ category.

The wholesale banks portfolio had the highest number of reported incidents in all 3 years although this sector has a substantially larger employee population, while also having a higher number of reported incidents per 1,000 employees. Wholesale banks also tended to be more likely to detect incidents compared with other portfolios. A high proportion of smaller firms (0 to 49 employees) reported no incidents during 2021, 2022 or 2023.

Other findings included:

  • Disciplinary or ‘other’ actions were taken in 43% of cases. In the remainder, the FCA saw a range of other outcomes – either the cases were not investigated or unable to conclude, not upheld, upheld with no other action, or investigations were ongoing.
  • The total number of confidentiality and settlement agreements signed by complainants fell over the 3 years surveyed according to the data from the wholesale banks sector. The data from other sectors showed no clear trend.
  • In all sectors, action taken following non-financial misconduct rarely resulted in remuneration adjustment. When remuneration was adjusted it was mostly against unvested variable pay.
  • 38% of total respondents stated that a board or a board level committee did not receive management information about non-financial misconduct. This may include respondents that do not have a regulated entity level board.
  • 33% of total respondents stated that they have no formal governance structure or committee that decides the outcomes and disciplinary actions for those involved in non-financial misconduct cases.

Next steps

The FCA expects firms to have effective systems in place to identify and mitigate risks of all kinds. Should allegations or evidence of non-financial misconduct come to light, it expects a regulated firm to take them seriously through appropriate internal procedures. It can investigate and act against authorised firms that have inadequate systems and controls in this regard.

The FCA expects firms to reflect on the survey findings and consider how their own performance compares with their peers. It also wants firms to discuss non-financial misconduct at senior management and board level and consider whether steps are needed to improve the firm’s culture, how risks are identified and managed and how non-financial misconduct is addressed on an ongoing basis.

The FCA also expects firms to:

  • Take allegations of non-financial misconduct seriously.
  • Have effective systems in place to identify, investigate and remedy promptly and fairly when allegations are substantiated.
  • Be fully compliant with their regulatory responsibilities and reporting requirements, regardless of size or sector.

Guidance

The FCA states that it will not be publishing best practice or guidance to firms at this time.

It will publish its feedback to Consultation Paper 23/20: ‘Diversity and inclusion in the financial sector – working together to drive change’ in due course.

Grid

The interim version of the Regulatory Initiatives Grid states:

“Following the joint Discussion Paper (DP21/1) published in July 2021, the regulators (PRA, FCA) published their separate Consultation Papers on 25 September 2023, with policy proposals that aim to support progress on improving diversity and inclusion across the financial sector and, through the FCA’s consultation, tackle non-financial misconduct (NFM). The FCA intends to publish a Policy Statement on ‘Tackling Non-Financial Misconduct in the Financial Sector’ around year-end 2024, to be followed by FCA and PRA Policy Statements on the remaining D&I proposals in 2025.”