A theme of self-regulation pervades the results of the FCA’s non-financial misconduct survey, with the onus put on firms to draw the necessary conclusions. In light of the ongoing tension between Labour’s growth initiatives and criticisms levied against the FCA’s competence and effectiveness as a regulator, the results land somewhat anticlimactically following ambitious goals in the wake of the #MeToo movement. 

The Financial Conduct Authority (FCA) recently published the results of its survey into non-financial misconduct (NFM), where over 1,000 investment banks, brokers and wholesale insurance firms were asked about the number of recorded incidents of NFM (along with their outcomes) between 2021 and 2023. 

The results were announced not long before the publication of the All-Party Parliamentary Group (APPG) report into the FCA (published 26 November 2024). The APPG painted an unforgiving picture of an “aggressive” and “macho” culture at the FCA, where “those who challenge a top-down ‘official line’ on any given issue are bullied and discriminated against, or even managed out”. While the FCA may have NFM concerns of its own, firms should be wary of dismissing the survey in this context and the APPG report may in fact strengthen the regulator’s case moving forward, amidst what will no doubt be ongoing scrutiny of NFM. 

The results 

The most recorded type of NFM incidents were bullying and harassment (26%), followed by discrimination (23%). Unhelpfully, the largest category of recorded incidents fell into the “other” category, with firms providing their own (wide-ranging) examples such as: 

• misuse of alcohol; 
• inappropriate and/or offensive language; 
• data protection and IT security breaches; 
• misuse of expenses and/or hospitality; and 
• retaliation.

We might hope to see such broad categories further refined moving forward, with the “other” category too extensive to provide concrete data. In addition, “bullying and harassment” might be better split out into distinct categories to provide more meaningful granularity on the types of underlying incidents. 

The key takeaway from the survey is that the number of reported incidents increased between 2021 and 2023. However, as the first comprehensive NFM data gathering exercise, it is hard to draw conclusions as to what exactly this data means. For example (and as foreshadowed by the FCA in its letter to those firms required to participate in the survey), are higher reported concerns of NFM indicative of a healthy culture where people feel able to speak up, or do the statistics simply demonstrate that there is a lot of misconduct taking place? This has been a known question about NFM statistics for some time, but this survey does not yet bring us closer to being able to answer it.

The main use of the results appears to be as a benchmarking exercise: (i) for firms to understand how their reporting frameworks fare against their peers and (ii) for the FCA to show more meaningful patterns going forward. 

The results also revealed insights into firms’ whistleblowing procedures. While 99% of wholesale banks reported having current whistleblowing procedures in place, the figures drop to 95% for wholesale brokers and intermediaries, and 90% for wholesale insurers, despite these procedures being mandatory. In-scope firms should ensure that they are compliant with SYSC 18.3.1 which requires that they “establish, implement and maintain appropriate and effective arrangements for the disclosure of reportable concerns by whistleblowers”.

What were the outcomes of reported incidents?

Action taken following NFM incidents rarely resulted in pay consequences. The outcomes varied measurably between the four different respondent categories. At London market intermediaries and wholesale brokers, over 50% of upheld incidents resulted either in dismissal or a written warning. But at wholesale banks just 18% of upheld incidents led to one of those outcomes, with the majority of incidents instead addressed through either a verbal warning or some other means such as diversity and inclusion training or other coaching. 

Again, it is difficult to draw firm conclusions from this data. However, some observers have noted that wholesale banks may be under-using the written warning response because it is seen as a "career-ending" decision, given that any such warnings must be disclosed in regulatory references. 

The incidents that were most likely to lead to dismissal included sexual harassment (22%); the possession or use of illegal drugs (21%); and violence or intimidation (21%). Despite being the highest-ranking categories, 62% of reported discrimination incidents and 47% of reported bullying and harassment incidents were not in fact upheld.

The relatively high volume of bullying and harassment incidents not being upheld is noteworthy. These incidents are often less clear than other forms of NFM, involving one person’s word against another and a lack of tangible evidence. The assessments to be conducted by firms in such cases will necessarily be subjective and fact-specific and will require difficult judgement calls. In these situations, firms must carry out a delicate balancing exercise, weighing up regulatory expectations and obligations against the risk of an employment law claim from an individual facing a potentially career-ending decision. 

A significant number of firms (38%) confirmed that their boards do not receive information about NFM, while 33% stated that they have no formal governance in place to decide the regulatory consequences for employees who are involved in NFM incidents. This is a regulatory risk for senior managers, who are expected to take NFM incidents seriously and to take responsibility for developing and embedding a healthy culture.

The survey also measured the use of NDAs when settling complaints, which shows a decreasing trend (dropping by 29% between 2021 and 2023). Given the heavy criticism levelled at the misuse of NDAs, not least through the Solicitors Regulatory Authority’s own warning notice cautioning lawyers on the correct use of NDAs, this may indicate a positive trend that NDAs are no longer being put to widespread inappropriate use. However, complainants most frequently signed a settlement or confidentiality agreement when the complaint related to discrimination. This is somewhat surprising given NDAs cannot be used to prevent whistleblowing to the FCA if the individual is making a protected disclosure (which must, among other factors, be in the public interest - discrimination might be considered a highly relevant category in this regard). 

What next for NFM?

The onus is on firms to interpret the data from the survey and assess whether their own processes and procedures to tackle NFM are adequate and functioning effectively.

As noted by Sarah Pritchard, Executive Director of Markets and International at the FCA, the immediate response for firms should be to reflect on “if they stand out and, if so, why that might be”.

Looking to the mid- to long-term, the FCA hopes that “trade associations will play a key role in coordinating industry-wide analysis and actions”. The FCA has confirmed that it will not be publishing best practice or guidance to firms at this time, but that it is considering feedback to its September 2023 consultation paper: "Diversity and inclusion in the financial sector – working together to drive change". 

We summarised the consultation paper’s proposals earlier this year, which include amending the Conduct Rules to expressly refer to NFM and new guidance to explain that bullying and similar misconduct, whether within or outside the workplace, is relevant to assessing whether an individual performing (or seeking to perform) a senior management or certification function is “fit and proper” to carry out their role. The publication of final rules has now been pushed back until early 2025, with FCA and PRA policy statements on other diversity and inclusion proposals to follow later in the year. 

What should firms be doing?

Firms should continue to critically appraise their policies and processes to ensure they have adequate systems in place and that their practices are aligned with the FCA’s expectations in this area. This includes the following.

1. Effective whistleblowing policies to facilitate employees coming forward with any concerns about the behaviours of others (including senior management). The new duty on employers to take reasonable steps to prevent sexual harassment further emphasises the need for appropriate processes and, in many areas, formal risk assessments.
2. Appropriate diversity and inclusion training at all staff levels, with specific reference to the risk areas identified by the FCA.
3. Regular and effective communications between HR and compliance – complaints involving allegations of bullying and harassment that may historically have been dealt with solely by a firm’s HR team will now need to involve the compliance function where individuals are within the regulatory framework.
4. Appropriate handing of complaints – complaints should be handled fairly, promptly and confidentially, with appropriate consequences for staff who are found to have committed NFM.
5. Accurate and detailed recording of NFM incidents and any outcomes. 

Wider City initiatives: Sexism in the City 

The NFM survey is part of a wider series of initiatives, including the Treasury Select Committee’s inquiry: Sexism in the City. That report concluded that regulators have an important role to play in promoting diversity and inclusion. In its response, the FCA agreed that this would reduce "groupthink" and boost the competitiveness of the UK’s financial services, in turn improving services for consumers. 

However, the Treasury recommended that regulators “drop their plans for extensive data reporting and target setting. In our view, a lack of diversity is a problem that the market itself should be able to solve without such extensive regulatory intervention."

Firms are therefore tasked with navigating their own path forward – for the time being, at least.