The FCA has published the results of a survey to better understand how investment banks, brokers and wholesale insurance firms record and manage allegations of non-financial misconduct (NFM), such as bullying, sexual harassment and discrimination.  

The survey of over 1,000 firms found that the number of allegations reported increased substantially between 2021 and 2023.

When the survey launched, the FCA was clear that it was likely that data could be read in different ways. For example, a high number of complaints could be an indicator of problem firm or a healthy culture in which people feel they can speak up, confident they will be listened to. A low reporting rate may indicate the opposite or it may be evidence of a healthy organization with very little misconduct being experienced and reported.   

At present the FCA is not expecting to undertake any supervisory action following the survey. It is just reporting the results and hope the publication will spark conversation within the industry. Trade bodies have received the report and have committed to working with the FCA by convening roundtables with their members to look at the results and discuss how to interpret them

What’s in the survey?

There’s a lot of data in the report; we provide a brief overview of some highlights that caught our eye.

In the three years covered by the survey, bullying and harassment (26%) and discrimination (23%) were the behaviors that led to concerns being most frequently reported. Interestingly, London market intermediaries had the highest relative proportion of reported incidents of violence or intimidation compared to other portfolios, and the least amount of whistleblowing.

However, the large “other” group of concerns (41%) indicates how difficult it can be to categorize issues of personal misconduct, which can range from something as seemingly innocuous as taking pets to work to serious offences such as alcohol misuse and the use of offensive language.

The remuneration data is of note, with only 1% of incidents resulting in clawback on unvested pay. Adjustments to bonuses as a result of non-financial misconduct were higher, with up to 10% for London market intermediaries. However, it could easily be argued that given the misconduct numbers reported remuneration is being underutilized as a tool to discourage non-financial misconduct.

Firms are also being reminded to update regulatory references with the incident numbers for non-financial misconduct. This is a regulatory requirement under SYSC 22.2. Response from industry on this point must be encouraging to the regulator with 92% of respondents saying they would include incidents of non-financial misconduct in a regulatory reference and 87% indicating that they would update the reference.

Reporting non-financial misconduct

The FCA found that there is real variety in the mechanisms through which firms identified concerns. Some firms were using their internal systems to identify potential issues, although formal processes and whistleblowing were the most prevalent methods of detection. 

However, going back to the initial point made by the FCA about the different ways the findings can be interpreted, a firm that that has a relatively low incidence of autonomous whistleblowing reporting could be the result of employees feeling more comfortable going through the HR grievance process in place.

Respondents in the insurance portfolios were less likely to detect alleged incidents through the use of communications monitoring and surveillance with only 1% of total incidents detected in this way. Whereas wholesale brokers and banks were far more likely to be using communications monitoring for detection.

This is an interesting data point and could be due in part to the fact that monitoring and surveillance is already being deployed in order to meet the market abuse obligations at these firms. The FCA’s Jamie Bell alluded to this point earlier this year when discussing voice surveillance, stating that in the regulator’s experience there is a strong correlation between market abuse failure, other types of compliance failure, and non-financial misconduct.

Regulatory concerns

Four per cent of firms didn’t respond to the survey and some firms, quite surprisingly, didn’t have whistleblowing policies in place. Both response and policy were and are mandatory. The FCA will almost certainly follow up on this.

Across all sectors, there were a low number of reported incidents which were simply not being investigated. However, again investigation of incidents is mandatory under the current rules, and therefore another area where the FCA will likely want to dig further.

Sarah Pritchard, executive director of markets and international, said: “We want this data to support financial firms by providing their management teams and boards with an opportunity to consider if they stand out, and, if so, why that might be.

“Healthy workplace cultures are essential across all the markets we regulate – where non-financial misconduct is allowed to persist it can undermine trust and confidence, and create a culture where wrongdoing goes unchallenged, causing harm.”

What next?

The survey provides more questions than answers. The FCA says it is reporting the facts. The findings are being shared to enable firms to benchmark their own reporting against the survey’s peer analysis and consider if their processes for reporting and investigating possible non-financial misconduct remain appropriate.

It is expected a representative from the FCA will be invited to take part in the industry roundtables to be scheduled by the trade bodies already mentioned to discuss the survey results. This is a time for reflection and it is hoped the industry will work with trade bodies to look at the results and draw their own conclusions to develop best practice.

Watch this space and we’ll provide further insight as developments emerge.