In an effort to bolster transparency and accountability within the financial services sector, the Financial Conduct Authority (FCA) has begun an examination of non-financial misconduct (NFM) among regulated entities.
The survey has been sent to regulated Lloyd’s managing agents, London market insurers (including protection and indemnity clubs), and insurance intermediaries, including managing general agents. This initiative comes out of the FCA’s concerns surrounding the handling and prevention of NFM in the sector, as articulated in its September 2023 portfolio letter.
Although the survey has been directed at firms within the insurance sector, other firms, including asset managers should take note as it is another indication of the FCA’s focus on NFM and culture within the industry.
Survey initiation and scope
On February 6, 2024, the FCA issued a letter, accompanied by a detailed survey, to gather information about incidents of NFM occurring within the firms over the span of three years, from 2021 to 2023. The survey itself is not yet publicly available, but the FCA’s letter provides some insight into the required disclosures. The survey does not seek detailed information related to the specifics of allegations or investigations, but instead requests high-level, aggregated statistics on:
- The number of non-financial misconduct incidents recorded (by type/category) and the method by which these incidents were detected (e.g., whistleblowing and surveillance within firm).
- The number of non-financial misconduct incidents recorded (by type/category of incident e.g., sexual harassment, bullying, and discrimination) and the outcomes of those incidents (e.g., dismissal, written warning, and complaint not upheld).
- The number of further outcomes recorded (e.g., non-disclosure agreements and employment tribunals).
Importantly, the survey mandates firms to report all instances of NFM, regardless of whether they were previously disclosed to the FCA. It also requires firms to distinguish these statistics between SMF (Senior Management Function) and non-SMF, and any other incidents of non-financial misconduct identified that took place at the office, working from home, working offsite, and social situations related to work.
This exercise aims to furnish the FCA with insights into the prevalence and dynamics of NFM across the financial services landscape, facilitating more informed and targeted supervisory interventions.
Expectations and compliance obligations
The letter explains the FCA’s expectation for firms to possess robust systems geared towards the identification and mitigation of NFM risks. Furthermore, should allegations or evidence of NFM surface, the FCA emphasises the requirement for regulated entities to take them seriously, conducting prompt and impartial investigations and administering appropriate disciplinary measures where warranted.
In addition to soliciting data on NFM incidents, the survey covers inquiries concerning a variety of related topics, including regulatory references, governance structures, appointed representatives, remuneration policies, disciplinary and whistleblowing and diversity and inclusion policies.
While the current initiative is targeted only at the insurance sector, it is worth noting the FCA’s focus on NFM extends to other sectors. The FCA’s consultation paper published last year in particular suggested integrating NFM considerations into staff fitness and propriety assessments, the Conduct Rules and the suitability criteria for firms to operate in the financial sector. Read our coverage of CP23/20 here. This is certainly an area of focus for 2024 and a topic all regulated firms should be reviewing.
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