In a recent article in the Financier Worldwide Magazine, Zulfi Meerza, a lawyer at Rahman Ravelli, and Charli Curran, Senior Director at Ankura, explain how firms can prepare for heightened regulatory attention on non-financial misconduct (NFM).
The Financial Conduct Authority (FCA) recently reported that it received 253 whistleblowing reports between April and June 2024. Of these reports, 92 related to senior individuals’ fitness and propriety (F&P), while 78 involved firm culture. The FCA has made clear that it sees workplace behaviors such as harassment and abuse as indicators of poor workplace culture, diversity, and inclusion.
While the FCA has sought to purse NFM cases under its F&P regime, there is currently no reference to NFM in the FCA's fitness and propriety regime. Additionally, a landmark Upper Tribunal case in 2021 established that, as the F&P regime exists currently, there must be a clear connection between the misconduct and the individual’s role to make a negative F&P assessment.
To resolve this, the FCA’s 2023 consultation paper proposed explicitly incorporating NFM into the regulatory regime. The changes would introduce conduct rules to address serious bullying, harassment, and discriminatory practices, such as sexual or racial offenses. And in February 2024, the FCA began an information-gathering exercise focusing on NFM, particularly the use of non-disclosure agreements (NDAs) in the insurance sector. Revised rules on NFM are expected to be finalized in the near future.
Ahead of legal and regulatory reforms, Meerza and Curran encourage firms to review their internal policies, reporting mechanisms, and procedures to ensure they can effectively address NFM. Beyond individual incidents, firms must assess whether NFM reflects broader cultural issues within the organization. A reactive approach limits effective remediation, while a proactive long-term program to improve company culture and prevent misconduct is essential for lasting change, they write.
In an article published in the FT's Banking Risk & Regulation earlier this week, Edward Brooks, Executive Director of the Oxford Character Project at the University of Oxford, and Stephen Scott, Starling's Founder & CEO, argue that, while it is essential for banking leaders to have the right character traits, it is equally important that they understand how to cultivate a culture that supports desired virtues among their employees.
"Studies show that it is the presence of shared virtues across an organisation that is correlated with good conduct outcomes, not individual leadership virtues alone," they write. "In banking, we want leaders who understand how the dynamics of organisational culture can be harnessed to drive virtuous behaviour. As such, we must test for how it is that potential recruits will seek to promote desired virtues among peers, and how they will test for their success in this direction over time." ▸ Read More
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