FCA publishes survey on culture and non-financial misconduct in UK’s finance sector

The Financial Conduct Authority has published the findings of its much-anticipated survey into non-financial misconduct. The survey covers over 1,000 firms in the financial sector and highlights significant gaps in how incidents of bullying, harassment, and discrimination are detected and managed. We’ll speak to an expert about the survey and how it fits in with the FCA’s mission to transform the culture in financial services.

The survey reveals that while many incidents of non-financial misconduct were reported, only 43% of these cases resulted in firms taking any disciplinary or corrective action such as  dismissals, written warnings, or other interventions. It highlights a significant issue, namely, that many firms either lack the appropriate processes to respond to reported misconduct or fail to act decisively. Furthermore, the FCA observed wide variation in how firms handled similar incidents which, they say, has led to inconsistent outcomes across the FS sector. For example, severe cases like violence or sexual harassment were more likely to result in action, whereas discrimination or less clear-cut behaviours often received less attention. 

That inconsistency underscores the need for stronger governance and clear rules, something the FCA aims to address with the upcoming changes to the Conduct Rules and Fitness and Propriety standards. The new rules are expected in draft form by December and aim to bring clarity to areas where the current framework has been criticized as vague. At their core, the changes will explicitly address misconduct such as harassment, discrimination, and the mistreatment of whistleblowers. For individuals, particularly those in senior roles, the new rules could have career-defining consequences. 

And it doesn’t stop with individual accountability. The new rules will place greater compliance obligations on firms, requiring robust policies and cultural reforms to tackle these issues head-on. Firms that fail to meet these expectations risk significant reputational damage, as recent high-profile cases have demonstrated.

So, let’s get a view on both the survey and the new rules. Earlier, I caught up with Jon Fisher who joined me by video link from Leeds. 

Jon Fisher: “So, the FCA has long been a keen promoter of a diverse culture because they think that is very healthy for business. The problem they've had historically is that their rules aren't particularly well designed towards encouraging that and the survey you just highlighted exactly says why this is still a problem and why action needs to be taken. What they've done, what they are proposing to do, and we expect the final rules come out in December, is they are proposing to change the rules as to who is fit and proper to carry out duties within financial services, and also the conduct rules which apply to the vast bulk of any financial services organisation so they explicitly deal with harassment and discrimination and detriment to whistleblowers. So at the moment, there's been a bit of an unsatisfactory fudge where it's been unclear what firms should do in that situation and there have been inconsistent approaches. If the rules come into force in the way we expect based on the drafts that have been published then it be absolutely clear that discrimination, harassment, failure to take adequate steps to tackle that harassment, may mean that somebody's not fit and proper or has breached the conduct rules and that's going to be incredibly important, both for the firms but also for individuals themselves, particularly in terms of fitness and propriety. I mean that effectively, could be career ending if you're not certified by the FCA for senior managers as being fit and proper, or not certified by your firm as being fit and proper. They'll have to go on a regulatory reference and that may essentially mean that your career in financial services is at an end and the really important thing for managers to know is it's not just for perpetrators who may come foul of these rules, it's also people who fail to take adequate steps to deal with complaints made to them as senior people in the business regarding potential harassment and discrimination. Failing to tackle those complaints could itself mean that you're not fit and proper and that is obviously a big change, something that doesn't necessarily apply outside of financial services, but really serious consequences for those individuals.”

Joe Glavina: “Can I ask you about the timing of this, Jon. As you say, we expect draft rules around December and we have already had a consultation which closed a long time ago, almost a year ago, so firms know what’s coming.”

Jon Fisher: “We’d expect a lead in time. So we expect the final form of the rules to be published in December, but we're not quite sure when they'll come into force. We expect a lead in time but, as you suggest, it won't necessarily be a huge lead in time because this has been trailed for a considerable period of time. But even in advance of those rules, I think we can anticipate pretty clearly what form they're going to take and I think it's really important that clients act now to start training people on what these rules are likely to say and just warning people, really, particularly your certified and senior manager population, of the consequences for them individually and what they need to be doing and how seriously they need to take these kind of complaints because it's only fair to them to be very transparent about the potential consequences for them of this, and this goes over and above all of the training which, hopefully, clients are already doing for the Worker Protection Act provisions relating to sexual harassment because this isn't just about sexual harassment, it's all forms of discrimination potentially, which could fall foul of these rules on grounds of race, disability, age, etcetera. It also covers detriment to whistleblowers and also I think there's going to be more required within financial services than is required for the general population under the Worker Protection Act in terms of what they are required to do to try and prevent these things from happening. In my experience, it's not necessarily the case that senior managers always understand that they're held to a greater, higher, standard than the rest of the population, and even things outside of work may impact on their career and whether they are assessed fit and proper, but that absolutely is the case and it's really important that clients make those people aware of that .”

Joe Glavina: “You say the new rules will have serious implications for individuals but what about for the firms themselves?”
 
Jon Fisher: “I mean, clearly it will affect firms as a whole, as well, in terms of their own compliance obligations but I think reputationally, absolutely that will be something that they need to take account of. I mean, hopefully they'll do it for the right reasons and not just because of reputational risks, but any kind of behaviour, or pattern of behaviour, of this nature poses huge reputational threat to the firm as well as the individuals involved.”

So, while the FCA’s survey has underlined the urgency of addressing non-financial misconduct across the FS sector, it’s the forthcoming changes to the Conduct Rules are set to be the real game-changer, holding individuals and firms to higher standards than ever before. The key message is clear – take steps now to get ready. 

Meanwhile, if you would like to look at the finding of the FCA’s survey they are available from the FCA’s website. We’ve included a link to that in the transcript of this programme.

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