UK financial firms require robust non-financial misconduct systems

Elizabeth Budd, financial services regulation expert at Pinsent Masons, was commenting after the FCA recently published the findings of its comprehensive survey on culture and non-financial misconduct within the UK’s financial services sector. The survey, which gathered data from over 1,000 investment banks, brokers, and wholesale insurance firms, highlights significant trends and areas for improvement in workplace culture and conduct.

Budd said the survey and its findings provide an important building block to help firms understand the FCA’s workplace culture and conduct expectations.

“This survey shows the FCA using data to inform its actions,” said Budd. “We do not have formal guidance yet on best practice but the FCA's position is increasingly clear, and firms need to ensure that they are actively considering at board level and then implementing properly throughout the business.”

The survey revealed a 40% increase in complaints related to non-financial misconduct, including bullying, sexual harassment, and discrimination, between 2021 and 2023. Bullying and harassment accounted for 26% of the reported incidents, while discrimination made up 23%. The remaining 41% fell into a broad “other” category, reflecting the diverse nature of non-financial misconduct issues.

The FCA has set clear expectations for financial firms following these findings. Firms are encouraged to benchmark their reporting and management of non-financial misconduct against the survey data. The FCA findings also highlight the importance of having robust internal systems for identifying and addressing misconduct.

Sarah Pritchard, the FCA’s executive director of markets and international, stressed the need for healthy workplace cultures across all regulated markets. She noted that non-financial misconduct can undermine trust and confidence, leading to a culture where wrongdoing goes unchallenged. The FCA aims to support firms by providing management teams and boards with the data needed to assess their own practices and make necessary improvements.

In regard to sexual misconduct claims, as of 26 October, employers have a legal duty to take reasonable steps to prevent sexual harassment of workers.

Chris Evans, employment law expert at Pinsent Masons, said: “The survey results demonstrate how important it is for firms to take this duty seriously and ensure robust systems are in place. This duty also involves ensuring policies are up to date as well as having clear and effective reporting mechanisms. The FCA’s commitment to addressing this issue is demonstrated by its expectation that non-financial misconduct is discussed at senior management and board level to identify areas for improvement.”

The FCA has promised to act where it finds that there has been failure to adhere to the rules.

The FCA plans to continue its engagement with the industry to address non-financial misconduct. This includes working with trade associations to coordinate industry-wide analysis and actions. The FCA’s efforts are part of a broader initiative to ensure that financial firms maintain high standards of conduct.