Non-financial misconduct and its links to failing culture

It is not uncommon to find cultural failure at the source of a poor outcome. Or to find poor conduct to be the cause of cultural failure.

Non-financial misconduct, as distinct from financial misconduct, continues to be under regulatory scrutiny. Tackling it forms part of the FCA’s current 5-year plan to drive positive cultural change through the industry by promoting good governance, raising standards, increasing accountability, and building trust in the sector.

Spotlight on Financial Services

The financial services industry has seen a high incidence of cases of non-financial misconduct. In just the last few years some distinguished entities and renowned figures have been tarnished with investigations, findings and sanctions, in relation to toxic behaviours that have included bullying, harassment, sexual discrimination, heavy drinking, and other forms of unacceptable behaviour.

The regulator is determined to foster good workplace cultures which do not tolerate poor behaviour, where systems and controls exit to manage the risks associated with it, and where people are empowered to speak up and raise concerns. Diverse workplace environments that promote constructive challenge are recognised as fostering better decision-making, supporting good governance and enabling appropriate risk taking.

As part of recent regulatory changes, the FCA is aligning the Code of Conduct rules between banks and non-banks and consulting on whether firms would find additional guidance in this space to be helpful in supporting them to apply the relevant rules consistently and fairly.

What will the new regime look to achieve?

The new regulatory regime will co-exist with relevant criminal law, employment law, and with employment tribunal and internal HR and employment codes and processes. There will be focus on:

• deterring wrongdoing that could harm individuals and promote unhealthy workplace cultures;
• preventing the development of cultures that facilitate wrongdoing and regulatory breaches;
• stopping individuals who have a history of non-financial misconduct from moving from one firm to another without appropriate disclosures being made; and
• fostering workplaces that promote constructive challenge, good decision making, good governance, and appropriate risk taking.

What is meant by ‘non-financial misconduct’?

Non-financial misconduct can include conduct which takes place outside of the workplace including in the private and personal lives of those who work in this heavily regulated sector. The regulator has clearly stated that misconduct in that wider sense, beyond the immediate world of work, can be relevant to assessing an individual’s alignment with ethical or legal obligations and to their fitness and propriety.

It can also therefore pertain to their suitability to be involved in regulated business. The regulator will be particularly alive to behaviours that might indicate that an individual might breach the requirements and standards of the regulatory system. Here, honesty and integrity are key.
Some of the most recent high-profile cases of non-financial misconduct indicate that the risk of harm reaching well beyond the workplace of the individual or firm in question is very real, with the genuine possibility that the negative impact of poor workplace culture can reach to a firm’s employees and beyond, to its clients and customers, and to the wider markets.

For these reasons, this is a regulatory initiative that is rightly focused on the wider impact, addressing non-financial misconduct not only because having a better culture will improve things for firms, but because it will also have beneficial effects on the wider markets, preventing regulatory breaches and the harms that can result from them to the financial ecosystem as a whole.