Given the last couple of years of communication from the FCA, you would be forgiven for thinking that the conduct agenda has taken a back seat to Big Data, as a priority for the regulator. This is far from true and firms would be remiss if they downplayed the importance the FCA places upon the subject, even if their enforcement action may belie that premise.
Last year the FCA conducted a survey of the industry in respect of data concerning nonfinancial misconduct, which is the term they deploy for all misconduct outside of direct financial and market interactions, the most well-known of recent times being perhaps the Blackrock fund manager banned from the industry for life, having evaded £43,000 of train fares.
The FCA were interested in the data collected by a wide range of firms in respect of nonfinancial misconduct incidents. They drew some stark conclusions from the results, not least of which was, that having asked the industry to place more focus on such matters, there had been a marked increase in recorded incidents. Alarmingly over 25% of incidents were related to bullying or harassment and another 23% involved discrimination which many organisations might consider they have taken action to address.
These headline numbers however give the lie to the industry’s significant attempts to portray their Diversity, Equity & Inclusion (DEI) programmes in a good light. In recent months, and possibly accelerated by the on-coming Trump administration, several big US corporations have announced their intention to scale back on DEI initiatives. The merit of those decisions is not for this article as such but what they do indicate is the challenge that senior executives in the UK financial services sector, especially those subject to the SMCR, face in terms of regulatory expectations on culture and conduct. That challenge is that the FCA’s expectations on culture and non-financial misconduct have not receded and are unlikely to do so any time soon. Publicly stepping away from DEI programmes at a time when the data indicates an increasing problem will be very difficult to justify in front of an inquisitive supervisory team.
Alongside the FCA’s observations on the rising incidence of non-financial misconduct, were their thoughts on the lack of adequate consequence for poor behaviour and, in some cases rather unbelievably, the absence of satisfactory processes and procedures for the identification and handling of incidents, such as whistleblowing and HR disciplinary policies.
Whilst the large numbers of incidents relating to bullying, harassment (including sexual) and discrimination took the headlines, there were many types of misconduct in the Other category which give rise to other threats to a firm; not least of which were the misuse of data and firms’ technology (Operational Resilience and Cyber threats) and misuse of expenses, gifts and entertainment (Bribery and Corruption). These subjects have been areas of recent focus for the FCA and in many respects no less important.
As long ago as 2019, the FCA spoke to the industry about its culture and, in particular, the responsibility of senior management to ensure the psychological safety of their workforce to enhance a healthy culture. At the time, senior managers at the FCA indicated that supervisors would consider the mental well-being of employees in determining the effectiveness of the implementation of the SMCR in a firm.
March 2025