Legal development

FCA non-financial misconduct information requests; firms are put on notice on regulatory expectations

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    The FCA's continued focus on non-financial misconduct has been illustrated yet again, this time through a letter to insurance intermediaries setting out its request for information for the last three years on incidents or allegations of non-financial misconduct.  

    The letter asks firms to provide the regulator with:

    • The number of non-financial misconduct incidents recorded (by type/category) and the method by which the incidents were detected (e.g. whistleblowing and surveillance within the firm);
    • The number of non-financial misconduct incidents recorded (by type/category of incident e.g. sexual harassment, bullying and discrimination) and the outcomes of those incidents (e.g. dismissal, written warning and complaint not upheld); and
    • The number of further outcomes recorded (e.g. non-disclosure agreements and employment tribunals). 

    The FCA also want a break down of these statistics between senior management function holders and non-senior managers, as well as the identification of the location of any incidents (e.g. at the office, working from home, working offsite and social situations related to work). 

    The exercise forms part of the FCA's supervisory work that it has been undertaking in relation to non-financial misconduct.  While the exercise is framed as part of the FCA's fact finding work to get baseline data, the FCA is using its s165 FSMA powers to compel firms and senior managers to respond. Care should be taken to ensure that responses are accurate and verified, given the potential for further action to follow if you get this wrong (subsequent enforcement action is possible). 

    This is an extensive request from the FCA (and we have had sight of other similar surveys that the FCA has circulated which are just as detailed) and will be challenging for firms to have the data to hand broken down in the manner that the FCA has set out.  The FCA has sent similar questionnaires to wealth managers and brokers in January.  In addition, one of the takeaways from the FCA's appearance at the Treasury Select Committee in January was around the use of non-disclosure agreements in dealing with such complaints or allegations of such non-financial misconduct which suggested further scrutiny of the use of these in the market. 

    While the FCA is just information gathering for the moment (to determine whether there is harm occurring in the market) the questionnaires are a good indication of what processes the FCA expects you to have in place. For those firms who have not yet received a request, it is worth considering: 

    1.  do you have a clear definition of what amounts to non-financial misconduct in your organisation?  (The FCA refer to bullying, sexual harassment and discrimination but it could go wider than that and is certainly wider than your existing REP008 reports.)
    2. how do you record incidents, allegations or complaints of non-financial misconduct in your firm? 
    3.   do you record a breakdown the alleged misconduct on the basis of: grounds, location, seniority of staff, detection channel?
    4.   do your processes around whistleblowing, fitness and propriety assessments, disciplinary, D&I strategy, regulatory references and governance, amongst others, take non-financial misconduct into account?
    5.  do you undertake root cause analysis where there has been incidents of non-financial misconduct?

    These requests might seem innocuous, and the regulator is at pains to emphasise that they are trying to understand the prevalence of non-financial misconduct in the industry, but it is a topic that is not going away. Firms would be well advised to consider whether your existing processes match the regulators' expectations. 

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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