With the spotlight already on sexual harassment, following the introduction of the new duty on employers to prevent sexual harassment in the workplace (read more about the duty here), the FCA survey results could not have come at a more auspicious time.
What are the headlines?
The survey was sent to 1,028 regulated wholesale financial services firms, asking for data for three calendar years – 2021, 2022 and 2023. Over 50% of the firms required to respond were either London market insurers or intermediaries.
Some of the key finding from the executive summary include:
- The number of reported non-financial misconduct incidents increased over the three years surveyed.
- The distribution of non-financial misconduct types varied by sector although bullying and harassment (26%) and discrimination (23%) were the most reported types of non-financial misconduct across all sectors.
- Firms identified incidents through reactive routes such as grievances or similar formal processes (50%) and through alternative reporting routes such as whistleblowing.
- Disciplinary or ‘other’ actions were taken in 43% of cases.
- The total number of confidentiality and settlement agreements signed by complainants fell over the three years surveyed according to the data from the wholesale banks sector.
- Discrimination, with 23% of cases on average across all sectors, had the highest percentage of incidents resulting in the complainant signing either a settlement or confidentiality agreement.
- In all sectors, action taken following non-financial misconduct rarely resulted in remuneration adjustment.
- Some relevant policies, like whistleblowing and disciplinary policies, were not in place at all firms surveyed.
What is the data saying to financial services institutions?
The statistics paint a clear picture – non-financial misconduct is on the rise and is a significant problem across the industry. It is clearly taking place and a response of “that would never happen here” simply cannot be true, based on the statistical evidence that is in plain sight. The FCA encourages firms to use the results as a catalyst to prioritise and act on issues of non-financial misconduct. The unintended consequences of doing nothing are far-reaching and the stakes are high.
Bullying, harassment and discrimination are the most prevalent forms of non-financial misconduct and the damage to firms is extensive. A hostile work environment can lead to a myriad of issues for employers, including:
- Reduced productivity.
- Costly legal claims.
- A high turnover of staff and the resultant recruitment costs.
- High sickness absence, including long-term sick leave in relation to conditions such as stress.
- Poor staff morale.
- Reputational damage.
It is disappointing to see that non-financial misconduct rarely resulted in remuneration adjustments. Perhaps if the repercussions were financially costly, employees would think twice before behaving inappropriately.
However, it is interesting to see a fall in confidentiality and settlement agreements over the three years in the wholesale banks sector. With the SRA Warning Notice regulating the use of non-disclosure agreements and some high profile cases of inappropriate use of non-disclosure agreements (and ensuing reputational damage), it may be that silencing victims of poor behaviour is falling out of favour.
With some firms not having whistleblowing and disciplinary policies in place at all, it may be that a significant amount of behaviour is not actually reported. The questions of "How do I report?", "Where will it get me?", "Will I lose my job?, "What difference will it make?", "Will they protect me from retribution?", often still remain a barrier to full and frank reporting.
Now is the time to sit up and take notice of the FCA’s goals
The FCA is focused on continuous improvement of the culture of the firms they regulate, assuring the fitness and propriety of those firms' senior managers and requiring firms to properly assess the fitness and propriety of their certified staff. Culture is clearly critical and an ongoing priority for the FCA that is not going to dissipate
"A corporate culture that tolerates sexual harassment or other non-financial misconduct is unlikely to be one in which people feel able to speak up and challenge decisions, or one in which they will have faith that concerns will be independently and fairly assessed. Such a culture also raises questions about a firm’s decision making and risk management."
Firms are expected to use the survey as a benchmark and to take the opportunity to reflect on whether their own processes, procedures and controls provide both robust detection and appropriate outcomes.
The survey findings remind firms that robust processes, systems and controls are vital for mitigating all types of risk, including financial and non-financial misconduct. Effectiveness of such procedures is enshrined in a corporate culture which values integrity and accountability. The FCA clearly states that they want firms to discuss non-financial misconduct at senior management and board level.
The results of the survey come at the same time as the consultation by Lloyd's of London in relation to its proposed new rules and guidance for its new Conduct framework which is explicit about the nature and types of behaviour that it considers to be acceptable in the Lloyd's market.
Everyone has a human right to go to work and feel safe from unwanted behaviour
The FCA's focus on non-financial misconduct aligns with the broader human rights agenda, emphasising the need for ethical conduct and respect for individuals' rights in the workplace. Creating a psychologically safe workplace, free from poor behaviour, is part of the wider picture of protecting human rights. We are seeing more and more cases come through the courts and tribunals where employees are asserting that there has been a breach of their human rights in relation to poor workplace behaviour.
Article 8 of the European Convention on Human Rights (right to respect for private and family life) has been engaged in a number of bullying and harassment cases with courts finding that the right to respect for private life includes an individual's physical and psychological safety. Whistleblowers may also be afforded protection under Article 10 (freedom of expression) of the European Convention on Human Rights. Respecting basic human rights in the workplace helps employers attract and retain the best talent.
Comment
The direction of travel is clear for the industry – non-financial misconduct will not be tolerated and is bad for business. We have seen the Sexism in the City report where a number of recommendations have been made for the financial services industry (read more about it here) and the Lloyd's New Conduct Framework proposing to implement a suite of changes to modernise and streamline its approach to dealing with poor conduct and behaviours in the market. Employers which are able to get ahead of the game and truly transform their workplace culture into an inclusive and safe space will reap the rewards. We have already seen the introduction of the new duty on employers to prevent sexual harassment; the recently published Employment Rights Bill promises further regulations on harassment (read more about it here) and the FCA is shining an increasingly brighter spotlight on non-financial misconduct. Now has got to be the time to take proactive and preventative action.
At DWF, we can provide:
- Workplace culture audits to stress test organisational culture, identify potential behavioural risk exposure and develop risk-based remedial interventions that will actively mitigate culture risk.
- Human rights impact assessments and due diligence reviews.
- Independent reviews and/or design of ethical conduct and business integrity frameworks aligned to corporate purpose, valued behaviours and regulatory compliance requirements (including ethical decision-making and ethical business scenario analysis).
- Inclusion and diversity strategic design, development and implementation including dashboards, data and metrics, policies and procedures and global good practice.
- Tailored education programmes to embed cultural change targeting boards, executive management teams, people managers and wider employee base.
Contact our experts today if you require any advice or guidance.
