The number of reported non-financial misconduct incidents in the financial sector increased by more than 70% over a three year period, according to the Financial Conduct Authority (FCA).
The number of total incidents reported across a sample of the industry increased from 1,367 in 2021, to 1,670 in 2022 to 2,347 in 2023, an FCA survey has found. That represents an overall increase of 72%.
In February 2024, the FCA sent a survey to 1,028 regulated wholesale financial services firms asking about recorded incidents of non-financial misconduct in 2021, 2022 and 2023.
The response rate was 96% with 984 firms responding.
The FCA survey on culture and non-financial misconduct survey examined how firms detect and handle non-financial misconduct incidents.
The distribution of non-financial misconduct types varied by sector but bullying and harassment (26%) and discrimination (23%) were the most reported types across all sectors.
There were also 41% of non-financial misconduct incidents reported in the ‘other’ category.
Baseline assessment
It was the first comprehensive non-financial misconduct data gathering exercise across these sectors and was seen as a significant step in understanding this subject matter, to provide a baseline assessment of behaviours.
The FCA said firms identified incidents through reactive routes such as grievances or similar formal processes (50%) and through alternative reporting routes such as whistleblowing.
Firms also identified incidents through firm-led detection methods such as market surveillance.
The FCA said: “Respondents in the insurance portfolios were less likely to detect alleged incidents through use of communications monitoring and surveillance.”
Disciplinary or other actions were taken in 43% of cases.
In the remainder, it saw a range of other outcomes – either the cases were not investigated or unable to conclude, not upheld, upheld with no other action, or investigations were ongoing.
Some types of reported non-financial misconduct, such as violence and intimidation, more often resulted in disciplinary actions compared to other types, such as discrimination.
In all sectors, action taken following non-financial misconduct rarely resulted in remuneration adjustment. When remuneration was adjusted it was mostly against unvested variable pay.
Some relevant policies, like whistleblowing and disciplinary policies, were not in place at all firms surveyed.
Reported incidents
The FCA said a high proportion of smaller firms with zero to 49 employees reported no incidents during the three years in question.
On average smaller firms had 9.1 incidents, medium sized firms had 18.7, and larger firms had 16.5 per 1,000 employees in the three-year period.
Fewer medium sized firms of 50 to 249 employees reported no incidents. However, 68% of medium sized wholesale broker respondents reported no incidents.
The London market insurers portfolio was the only portfolio where five or more large firms of 250 or more employees reported no incidents over the three years.
FCA expectations
Following the survey, the FCA said it expected firms to:
- take allegations of non-financial misconduct seriously
- have effective systems in place to identify, investigate and remedy promptly and fairly when allegations are substantiated
- be fully compliant with its regulatory responsibilities and reporting requirements, regardless of size or sector
Positive momentum
The FCA said: “We think that this collective process will help to drive continued positive momentum on improving culture in financial firms. We will not be making new best practice recommendations for firms at this time.
“We expect firms, working with their trade associations, to use this benchmark survey data to reflect on whether their own processes, procedures and controls provide both robust detection and appropriate outcomes.
“We then want firms to discuss non-financial misconduct at senior management and board level.
The FCA said all firms must be fully compliant with their existing regulatory responsibilities and reporting requirements.
“We will use the responses to the survey to inform our supervisory and policy work.
“We will act where firms fail to adhere to our rules.”
Whisleblowing
The FCA said that while it expected firms to have developed a speak-up culture and the right processes to identify non-financial misconduct, including whistleblowing functions, it would continue to promote its whistleblowing line.
“Individuals can report misconduct to us, regardless of whether they have raised concerns internally at their firm first.
“Any member of the public, including firm employees, can use our whistleblowing line to report misconduct, including non-financial misconduct.”
