Financial Conduct Authority Set to Tackle Non-Financial Misconduct

The Financial Conduct Authority (FCA) has written to firms, outlining its plans for addressing non-financial misconduct and creating a positive cultural shift.

In a 'Dear CEO' letter sent out recently, the FCA reiterated its dedication to transforming the culture in, and perception of, financial services companies. SM&CR (senior managers and certification regime) will seemingly be the focus moving forward, with the suggestion being that the FCA and Prudential Regulation Authority (PRA) will soon be supervising firms where non-financial misconduct is suspected.

This means that the two bodies will also be taking direct action in relation to cases of bullying, discrimination, victimisation and harassment. The FCA believes that, if left unchecked, these acts of non-financial misconduct can have a ripple effect which will eventually impact consumers too, hence the new measures.

It is hoped that focusing on these behaviours and offering corrective intervention will help firms to see the effect that a positive atmosphere and culture will have on the sector as a whole, as well as individual businesses and their employees.

The work ahead for firms

The challenge for firms now is to identify anywhere their current practices fall short of the FCA and PRA's guidelines and expectations, and how they can better tackle these issues.

For their part, the FCA has has already collated a set of online resources around culture change, which you can find here, while continuing to impress upon firms the importance of their actions. The letter itself is at pains to point out that the standard of any company's response to non-financial misconduct directly reflects their culture. Senior managers are under particular instruction to lead the way in creating a positive culture, identifying areas for improvement and existing positive elements, as well as, what the FCA is calling, 'drivers of culture'.

What are the drivers of culture

The four drivers of culture, as set out by the FCA, are as follows:

Leadership

Senior managers will be held accountable should they fail to handle non-financial misconduct in a proper way. What's more, boards expected to consider prior actions when deciding if an individual is a suitable candidate for a SM role.

Purpose

Firms must have a clear, and well communicated, purpose that employees and customers alike can identify with.

Approach to people management and reward schemes

A firm's incentive and reward scheme structures must be consistent with the purpose identified above.

Governance systems and controls

All systems and controls should be made compatible with a firms purpose. For example, having whistleblowing procedures and processes in place fundamentally aids a company with a focus on transparency.