All too often we hear about major conduct failings in our industry. Sometimes it’s an isolated event caused by the choices of a single individual. Other times, misconduct is endemic across a business, lurking just beneath the surface and taking well-meaning employees down with it. In almost every instance, a poor culture is the root cause.

The FCA has recently deemed three individuals ‘not fit and proper’ following their convinction of serious criminal offences. Unsurprisingly, a ban from working in financial services swiftly followed – the latest in a series of clear messages from the regulator that ‘non-financial misconduct is misconduct, plain and simple’.[1] 

Back in 2018, Megan Butler stated that sexual harassment and other forms of non-financial misconduct amount to a breach of the Conduct Rules and SMCR.[2] In January this year, we saw the FCA laying out its expectations on how firms should proactively address non-finanical midconduct in a Dear CEO letter to the wholesale general insurance industry.[3]

The message is loud and clear – the way you handle non-financial misconduct is indicative of your culture. And poor culture is bad for consumers, employees, markets and your balance sheet alike. The FCA’s pushing this issue forward through its supervision of firms and senior managers, so taking a proactive approach to address it is a no-brainer really.

So, what is non-financial misconduct?

It can come in many guises. Discrimination, harassment, bullying and victimisation to name a few.

If these kinds of behaviours fly under the radar in your business, it suggests a culture where people don’t feel safe to speak up —  a key area of significant focus for the FCA in their supervision of culture through the culture drivers. Through this increased supervision, the FCA is seeking to ensure that all firms understand the need to foster a healthy culture.

What can you do about it?

While some of this can be hard for business leaders to spot, there’s some key checkpoints you can leverage and common indicators that will flag up any issues.

• Consider non-financial misconduct when carrying out fitness and proprietary assessment. Honesty, integrity and reputation is every bit as important as competence to perform the role and the onus of this assessment sits with the firm.
• Ensure senior managers are taking responsibility for tackling non-financial misconduct that happens on their watch. And a failure to take reasonable steps to address non-financial misconduct should be taken into account when considering the suitability & performance of senior managers and other leaders. This forms the backbone of the SMF regime.
• Review your processes for handling non-financial misconduct. Look at it through a formal and informal lens, making sure there aren’t any obstacles to the creation of an environment where it is safe to speak up. This type of environment reduces the risk of unethical behaviour. Remember though, speaking up doesn’t always come naturally to people — it’s just as important to have a listening culture and senior managers should promote this.
• Think about incentive structures and whether good conduct is rewarded. In our experience, most businesses are familiar with the balanced scorecard, meaning rewards aren’t solely based around financial performance. But broader things like having a clear purpose can help with reinforcing this, which is something many firms struggle with. Any culture transformation project needs to consider all the pieces of this puzzle and how they fit together.

1] https://www.fca.org.uk/news/speeches/opening-and-speaking-out-diversity-financial-services-and-challenge-to-be-met

[2] https://www.fca.org.uk/publication/correspondence/wec-letter.pdf

[3] https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-non-financial-misconduct-wholesale-general-insurance-firms.pdf