Cultural change at the fore for UK’s financial services sector

The FCA has published its survey into non-financial misconduct and it has reignited discussions about cultural challenges in the financial services sector. The survey analysed practices at over 1,000 firms, revealing persistent gaps in addressing incidents of bullying, harassment, and discrimination. While reporting has increased, many firms still lack consistent processes to manage these issues effectively, leaving governance and accountability as areas needing urgent improvement. We’ll speak to D&I expert who is helping firms make the changes needed.

The survey is the backdrop to the FCA’s conduct rules changes expected to be published in draft form next month which will significantly change the regulatory framework surrounding non-financial misconduct in the FS sector. On top of that, we already have the new duty to prevent sexual harassment brought in by the Worker Protection Act with effect from 26 October. The new duty requires firms not only to respond to harassment but to actively prevent it, placing proactive cultural change at the heart of compliance. It all adds up to a significant extra layer of responsibility for firms in this sector.

As you would expect, with all that going on, we have been busy advising clients on how best to meet the challenge of balancing compliance with genuine cultural transformation of their business. So, moving beyond tick-box exercises and viewing these obligations as an opportunity to improve both workplace culture and business outcomes.

So let’s hear more on that. Kieron O’Reilly is a consultant with Pinsent Masons’ D&I consultancy Brook Graham and earlier he joined me by video-link from the London office to discuss it:

Kieron O’Reilly: “It's what's come about. It didn’t start that way because initially a lot of the firms that came to us in the FS sector, similar to others, were saying, right, we want to make sure we're meeting the Equality Human Rights Commission guidelines that goes with the new duty to prevent, the Worker Protection Act amendment but, actually, we took a step back and said, look, you've got different teams here. These are large organizations, so we've got compliance, we've got HR, there's a range of different stakeholders, if you like, responding to the regulator’s requirements in this area. But if we step back and say, right, let's bring all of those people together then by actually taking the steps we need to for the Worker Protection amendment, the risk assessments, the policies, training and so on, we are also meeting what is being asked of by the different regulators, be that the FCA or the PRA or the pension regulator because they're all essentially driving towards the same thing. They're all pushing this movement around culture to reduce harassment and bullying. So effectively, whilst we're meeting the regulations and we're meeting the guidelines, the work we're doing is to put in the actions that will actually have the outcome of the behavioural change that all these things are about and if you look at the FCA survey it's clear. When it comes to non-financial misconduct the two biggest areas are harassment and discrimination, harassment being the highest one. So it fits in with the Worker Protection amendment, it fits in with different regulations. So by taking the actions of doing your risk assessment, by doing your policies, and looking at your training, looking at where your risks are and how you would manage them, which is very different across a large organization, we're meeting all these requirements. So, essentially it means we're meeting requirements across a different set of bodies and we're also driving towards behavioural the change we're looking for, which is really what is at the heart of this. So it makes, in some ways, sense to join all these different departments up and work together and that's what we're doing and we're finding it quite effective.”

Joe Glavina: “You talk about taking action, Kieron. I guess first and foremost that would involve some sort of risk assessment. Is that what you’re advising your clients to do?” 

Kieron O’Reilly: “Absolutely, and I think when we go and have a look at what they think their risks are in respect of this, and there's lots of good work already done around these risks, it is that we are looking at it at more of a local level. So for example, depending on where the company's operating, different departments and teams, those risks present slightly differently. So we need to make sure we've recorded them. We need to make sure we're aware of them, and that then fits with the duty to prevent and then the actions taken off that can be set locally and that makes life a lot easier. So this risk assessment is really important. What’s important about it is not just carrying it out, it’s communicating that to the board, it’s communicating that to the senior leaders, because that's, again, what the FCA is asking for when it comes to the results from this survey. They want the board to be aware of the risks. They want them to be communicated with so they can understand what the range of non-financial misconduct is going on and that's what the regulator's asking for here. Take a step back. Look at your own numbers when it comes to non-financial misconduct, in particular, harassment and discrimination and bullying. Have a look at what that means for you, and then take a view on what that risk looks like and that's they will start to monitor that and as my colleague, Jon Fisher said in your recent interview, we can start seeing that happen around about December. So the actions for the Worker Protection amendment will cover this if you take proper focus and that's what we're finding is working really well in the FS sector just now.”

Joe Glavina: “Finally Kieron, what would be your key message to HR professionals watching this and in-house lawyers?”

Kieron O’Reilly: “I think this is about culture. So I think if we look at HR, they have the agency, if they're given it, to take the actions. They need to communicate that to the board. So I think from a HR perspective, be really clear about what your D&I process and policies are but, more importantly, let's have a look at what those non-financial misconduct situations are in your own organisation. Reflect on those then carry out the risk assessments of what that looks like for the future and communicate that to the board as soon as possible. I think that's the key message to HR. The message, I think, for in-house lawyers is, of course, they have a very important role to play of setting the compliance and the requirements here. Now we mentioned that there's quite a lot of different bodies asking for essentially very similar actions to be taken regards culture. So, I think the compliance point of view, meeting the regulators’ requirements, meeting the Worker Protection amendment requirements, as well as the Equality Act overall, comes together very neatly and can set very clear processes for policy and reporting and actions that can be taken and I think they are the foundation on which HR can take this forward.”

Kieron mentioned my earlier interview with Jon Fisher who talked in some detail about the FCA’s new conduct rules, which we expect to see in draft form next month, and what firms need to be doing now to be ready for the changes which lie ahead. That programme is called ‘FCA publishes survey on culture and non-financial misconduct’ and is available now for viewing from the Out-Law website. We’ve included a link to it in the transcript of this programme for you.

- Link to HRNews programme: ‘FCA publishes survey on culture and non-financial misconduct’

- Link to FCA survey on culture and non-financial misconduct