The Financial Conduct Authority (FCA) has published the much-anticipated results of its first industry-wide survey of incidences of non-financial misconduct (NFM). The survey aimed to understand how firms record and manage allegations of NFM, including how it is detected, and the outcomes of investigations.
What is the FCA’s culture and non-financial misconduct survey?
In February 2024, the FCA issued a survey to 1,028 regulated wholesale financial services firms requesting data on recorded incidents of non-financial misconduct in 2021, 2022, and 2023. The survey defined NFM as ““bullying, sexual harassment, and discrimination, whether in or outside the workplace,” and its scope included:
“Incidents that took place at the office, working from home, working offsite, and social situations related to work. This can include incidents that happened in any work-related capacity or event and may include events that have been organized through work, including staff social events, off-site training and conferences, client entertainment or sponsored events.”
The regulator described the survey as “the first comprehensive non-financial misconduct data gathering exercise across these sectors,” framing it as a “significant step in understanding this subject matter, providing a baseline assessment of behaviors.”
What does the FCA’s culture and non-financial misconduct survey tell us?
The results of the FCA’s survey paint a picture of the number and types of NFM incidences across the sector, how those incidences are reported or discovered, and what (if any) subsequent actions are taken by firms as a result. The results include:
- The number of incidences of NFM reported increased significantly over the three years surveyed
- While varying by sector, the most reported types of NFM were bullying and harassment (26%) and discrimination (23%)
- 41% of reported NFM incidents were listed in the ‘other’ category, representing the broad nature of behavior that can be considered as misconduct
- Disciplinary or ‘other’ actions were taken in 43% of cases
- A range of other outcomes were reported, including cases not being investigated, not being concluded, not upheld, upheld with no further action, or that investigations were ongoing
- There was a decrease in the total number of confidentiality and settlement agreements signed by complainants across the period 2021 – 2023
- Firms identified incidents through reactive routes, such as grievances or similar formal processes, in 50% of reported cases
- Some policies, like whistleblowing or disciplinary processes, were not in place at all surveyed firms
Open to interpretation
The FCA’s press release summarizing the survey findings stated that:
“It was likely that data could be read in different ways. For example, a high number of complaints could be an indicator of 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.”
Similarly, the drop in confidentiality and settlement agreements could reflect a cultural shift against the use of non-disclosure agreements, especially over claims involving sexual harassment or assault in the wake of highly publicized legal cases against figures both within the financial services space and outside of it. The FCA’s release contextualizes that the ‘other’ group of concerns (encompassing 41% of reported incidences) “indicates how difficult it can be to categorize issues of personal misconduct.”
The regulator is publicizing the survey findings to:
“Enable firms to benchmark their own reporting against this peer analysis and consider if their processes for reporting and investigating possible non-financial misconduct remain appropriate.”
Summarizing the findings, Sarah Pritchard, executive director of markets and international at the FCA, stated:
“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. The data requires context and careful interpretation. But, in being transparent, we hope financial firms can benchmark themselves against their peers.”
Pritchard also identified the importance of open and frank discussion of NFM in creating more inclusive, positive cultures within financial services, and reduced harm:
“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.”
How are firms identifying non-financial misconduct?
While the FCA’s survey results suggest that firms are predominantly identifying incidences of NFM through “reactive routes” like grievances processes (50%), there are also examples of “firm-led detection methods” like market surveillance being used.
Detection using monitoring and surveillance methods “such as the monitoring of work email or telephone conversations” were statistically low in comparison to grievance, whistleblowing, or other formal processes, but the FCA recognized that “monitoring and surveillance is likely to be primarily designed by firms for other purposes than specifically the detection of non-financial misconduct,” with these methods being widely used to identify instances of off-channel communications or market abuse.
The FCA explained that:
“Wholesale banks and brokers were more likely to be using communications monitoring and surveillance as part of their standard monitoring for surveillance to meet their market abuse obligations, for example.”
The regulator identified that firms of varying sizes and scales, or in different verticals, will find certain methods of detecting NFM will be better suited to their business. However, the regulator urges firms to:
“Consider a variety of complementary methods for identifying non-financial misconduct to improve detection and for considering information that comes from different sources.”
The figures for wholesale brokers detecting instances of NFM through surveillance tools were the same as those for whistleblowing for that type of firm, with both sitting at 10%. While formal grievance processes may be doing the statistical brunt of the work in uncovering NFM at present, regulators clearly expert firms to be considering all possible methods as a means to identify misconduct. Because, based on the total volume of reported NFM incidences, those identified through surveillance and monitoring can still account for hundreds of incidences. With regulators taking an increasingly hard line on NFM obligations, firms can’t afford to let even a single instance slip through the net.
