Culture Contagion! The FCA’s Focus on Culture, Non-Financial Misconduct, DEI, and Accountability is Enduring... and Intensifying

In rather stark contrast to recent developments across the pond, on Tuesday (4 February 2025), the FCA’s Chief Operating Officer, Emily Shepperd, delivered a speech doubling down on the centrality of healthy, inclusive, and diverse corporate cultures to improving market conduct standards and driving strong, sustainable, long-term economic growth.

Ms. Sheppard likened culture (good or bad) to a winter virus spreading insidiously through interactions, meetings, and decisions to impact not only the health of an entire organisation, but also consumers, markets, and the UK economy. She pointed out that the FCA continues to find failings in culture and governance as the “same root cause” in investigations of market conduct or consumer protection issues, because “it is culture that drives conduct. Culture that shapes decisions and actions at every level.” 

Ms. Sheppard went on to explain that when respect, integrity and accountability are woven into the fabric of an organisation, they act like a “social immune system” – catching bad behaviour early and stopping it from spreading. Ms. Sheppard also made the following key points:

• Economic Growth: Healthy corporate culture is essential for the UK government’s focus on increasing economic growth, since the latter will require thoughtful risk-taking. Genuine, inclusive cultures with diverse perspectives will prevent groupthink and support better decision-making so that when risks are taken, they are thoughtful and calculated.
• Psychological Safety: Successful teams are characterised by psychological safety. The lesson for the financial services sector is clear: cultures that encourage open dialogue, constructive challenge and learning from failure, ultimately fuel innovation, agility, and longer-term success.

Planned Regulatory Action

Ms. Shepperd explained that the FCA sees its role as protecting consumers, ensuring market integrity, and supporting economic growth by promoting healthy organisational cultures, and outlined some of the key steps it is taking in this regard:

Non-Financial Misconduct (NFM): 

• NFM behaviours (e.g. bullying, harassment, and discrimination) are clear indicators of a toxic culture. The FCA’s recent survey of around 1,000 regulated firms reported 2,347 allegations of NFM in 2023 – nine per day (our breakdown of the results has more detail). Ms. Sheppard warned that ignoring toxic behaviours “not only drives away good staff, but has to raise serious questions about a firm’s wider decision-making and risk management.” 
• The FCA considers that it has an important role to play in tackling NFM: as discussed in our October and November updates, the FCA has been actively updating its rules and guidance on NFM, and Ms. Sheppard noted that the FCA will provide detail on its next steps “shortly”.

Diversity, Equity & Inclusion (DEI) initiatives: 

• In terms of diversity and inclusion more broadly, the FCA is working with the Prudential Regulation Authority (PRA) on next steps for DEI initiatives, which will be informed by their consultation and seek to dovetail with the UK government’s planned activity on employment rights, gender action plans, and disability and ethnicity pay gaps.

Senior Managers and Certification Regime (SM&CR): 

• The FCA introduced the SM&CR to encourage individuals to take personal responsibility for their actions and improve culture at all levels. The Regime has been successful in driving up standards across the industry and growing a culture of accountability, with the UK now seen as a leader on accountability and model for other countries. The FCA is currently working alongside the Treasury and the PRA to review and improve the SM&CR, to make it even more efficient and effective – a consultation paper will be published in due course.

In closing, Ms. Sheppard emphasised that a healthy culture acts like an immune system, preventing harm and promoting resilience, trust, and positive change within the financial sector.

What should you do? 

Firms in the regulated sector should not simply wait for the FCA’s NFM, DEI, and SM&CR measures – understanding and addressing the subtle indicators of good and poor culture and NFM-related risks requires a nuanced and careful approach.

Initiatives currently being used in the market include harnessing qualitative feedback about employees’ lived experiences to help map an organisation’s culture or pulling together (often disparate) sources of data (including from whistleblowing reports, surveys, exit interviews and so on) to triangulate patterns of behaviour or areas of concern. 

The sooner you start, the better – it is clear that the FCA’s focus on culture and its related regulatory initiatives is unwavering, and will only intensify. 

R&G Insights Lab's culture assessments allow you to systematically measure organisational culture and drive change by drawing on the latest developments in scientific research. The Lab's multidisciplinary team of behavioural scientists, regulatory specialists, and data experts work with clients to develop impactful, quantitative, and qualitative assessments and change-initiatives. Get in touch with us to find out more. 

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