Opinion

Unpacking the FCA's survey on non-financial misconduct

Published Date
Mar 18, 2024
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    Emily Barrett
The Financial Conduct Authority’s (FCA) latest survey issued to certain regulated firms suggests that tackling non-financial misconduct remains a key strategic priority for the UK regulator. This comes hot on the heels of wider proposals relating to diversity and inclusion in the UK financial services sector, which include amendments to the FCA’s rules to expressly accommodate non-financial misconduct and enable the FCA to intervene more easily.  The results of the survey are likely to inform the FCA’s supervisory approach to non-financial misconduct going forward. 

Background

The FCA has issued a notice to provide information, under section 165(1) of the Financial Services and Markets Act 2000 (FSMA), to: regulated Lloyd’s Managing Agents & London Market Insurers (including P&I Clubs), Lloyd’s and London Market Insurance Intermediaries (and Managing General Agents) and wholesale brokers, with a specific focus on the wholesale insurance market. This specific sector focus appears to follow from the FCA’s portfolio letter dated September 2023 setting out Insurance Market Priorities for 2023 – 2025.  

The survey is comprehensive, amounting to 23 pages of questions including a number of questions seeking high level data on the volume and type of non-financial misconduct (NFM) incidents occurring.  Questions are asked about:

  • methods of detection for such incidents, for example, whistleblowing, grievances, surveillance;
  • the outcomes of those incidents, for example, dismissal, written warning, complaint not upheld; and
  • any further outcomes recorded, for example non-disclosure agreements and employment tribunal proceedings.

The types of NFM incidents listed include sexual harassment, bullying, discrimination, possession or use of illegal drugs, violence or intimidation and a catch-all category of other NFM.

The survey requests this data for a period of three years from 2021 – 2023 and asks firms to split out incidents between those attributed to Senior Management Function (SMF) holders and non-SMF holders. 

The survey requests information on all NFM incidents, and not just those incidents deemed to meet the FCA’s reporting requirements. It also requests that information be provided on all NFM incidents “that happened in any work-related capacity or event”, which suggests that the regulator is interested in conduct both on and off work premises. This could, for example, include incidents that took place at a conference or staff party as well as while employees are working from home. 

The survey does not seek details about specific incidents, complaints or allegations. 

Firms’ regulatory response and internal governance framework and processes

In addition to the statistics discussed above, the survey sets out a series of other requests for information, which indicate that the FCA is not only interested in understanding the volume and nature of the incidents themselves but also firms’ regulatory response to such incidents and firms’ wider governance framework for handling NFM. This aligns with the FCA’s expectation that firms should “have the internal procedures to investigate [NFM incidents] promptly and fairly, and to take appropriate action when allegations are upheld.

As noted above, the survey requests information on all NFM incidents and not just those deemed to be reportable to the FCA. However, the latter part of the survey appears to be specifically targeted at understanding firms’ regulatory response to these types of incidents. Specifically, the survey asks firms to provide high-level statistics regarding the number of times a firm has amended an individual’s Fit and Proper assessment for NFM-related incidents (both in and outside of the workplace) and information regarding incidents of NFM in respect of regulatory references. 

The FCA also appears keen to understand firms’ wider governance framework and internal policies and procedures for handling NFM incidents. The survey asks targeted questions on formal governance structures in place for deciding on outcomes and disciplinary actions involving NFM cases and the level of management information on NFM incidents being reported to the board or board level committees. The survey also delves into internal policies and procedures including questions on firms’ remuneration policy, disciplinary policy and whistleblowing policy, with a specific focus on training in respect of whistleblowing. 

Perhaps unsurprisingly, considering the FCA’s wider focus on diversity and inclusion (D&I) in the financial services sector, the FCA is also asking whether firms have a documented D&I strategy.  There is no regulatory requirement for firms to have such a strategy at this time, but the FCA and Prudential Regulation Authority recently consulted on proposals to introduce this as a regulatory requirement. 

Informing the groundwork for a future supervisory approach 

It is clear from the wide range of information requested in the survey that the FCA is seeking a detailed overview of the scale of NFM in the wholesale insurance and broking market.  As well as enabling the FCA to “build a clearer understanding of when and where non-financial misconduct occurs” and providing a “baseline assessment of each sector”, the survey will no doubt assist with shaping the FCA’s future supervisory approach and best practice to tackling NFM, not just in the wholesale insurance market but also for other regulated firms in the financial services sector.

The Treasury Select Committee’s recent report on “Sexism in the City” calls for boards and senior leadership at firms to take greater responsibility for delivering change and highlights the role regulators have to play in this. We are therefore likely to see similar requests going out to other types of regulated firms in the future as the FCA continues to drive forward its strategic focus on tackling NFM. 

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This content was originally published by Allen & Overy before the A&O Shearman merger

About the
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Emily Barrett

Associate

London