Non-financial misconduct: The art of self-policing and whether FCA industry data can play an effective role

Firms continue to grapple with the issue of non-financial misconduct in a regulatory context. Despite cries for constructive guidance, regulators are yet to respond. The latest sounding from the FCA adds more confusion to already muddied waters.

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Industry engagement

Whilst non-financial misconduct has been an area of regulatory focus since 2018, 6 years on the FCA remains within its ‘industry engagement’ phase i.e. engagement with Select Committees, portfolio letters, a consultation and multiple speeches. This has culminated in a survey issued to wholesale firms.

The survey was hailed as “the first comprehensive non-financial misconduct data gathering exercise”, “a significant step in understanding this subject matter” and “a baseline assessment of behaviours”. However, its findings make for sombre reading for firms, being a far cry from the practical guidance sought.

Thematic findings

Increase in reported incidents over the three-years surveyed, particularly bullying, harassment and discrimination.
Incidents typically reported through grievances/ whistleblowing.
Disciplinary action in only 43 per cent of cases (mainly violence and intimidation), with remuneration adjustment rarely being made.
Reduction in the use of confidentiality and settlement agreements (mostly used in discrimination cases).
Board level committees not receiving associated MI in 38 per cent of firms.

Key messages from the FCA

The overarching message is that firms should continue to self-police non-financial misconduct, but with an expectation that the findings be used to benchmark processes, procedures, controls and outcomes against peers.

Within the same breath, the FCA makes several seemingly contradictory statements, acknowledging limitations associated with the use of the data including:

the accuracy of the data;
variance in approach according to size and nature of a firm’s operations;
lack of context and interpretation; and
potentially misleading conclusions if generalised inferences are made.

Challenge for firms

The findings do not address the real issues that firms encounter daily: when non-financial misconduct becomes a regulatory matter and consistency across the industry. The findings pose more questions than answers:

How to benchmark against peers when many of the findings have been amalgamated across 1,028 firms and 4 portfolios (across which response rates varied)?
How to benchmark interpretation and application of relevant regulatory standards (integrity/ fitness) in absence of associated data?
Practical use of the data in absence of context, a crucial element to the assessment (i.e. fact pattern, aggravation and mitigation)?
How to benchmark (i) incidents outside the workplace; (ii) conduct rule assessments; and (iii) ‘not upheld’ decisions, given the lack of data?
Applicability of the data to firms outside the wholesale sector?

The FCA has stated that it continues to prioritise work on non-financial misconduct, but one must query the extent to which that has occurred given its decision to not publish guidance at present. This suggests the FCA is yet to reach a landing spot on how non-financial misconduct interplays with its rules. Notably, the reference to the survey being the “first” data gathering exercise, and a “baseline assessment”, indicates that more data gathering could follow.

In the meantime, firms can mitigate risk by ensuring: