The FCA has taken another notable step as part of its efforts to crack down on non-financial misconduct in the workplace. As we noted in this blog post, the topic of non-financial misconduct has been on the FCA and PRA’s radars for some time as part of the broader focus on culture and these regulators have recently released consultation papers which clearly state a strengthening of their expectations around how firms consider non-financial misconduct from a regulatory perspective. The FCA and PRA interest in the topic runs in parallel to the “Sexism in the City” Inquiry launched by the Treasury Select Committee (the Committee) in summer 2023, which aims to address sexism in the financial services sector.
Various representatives of the FCA and PRA gave evidence before the Committee in January 2024, one of whom was Sarah Pritchard, Markets and Executive Director, International at the FCA. When giving evidence, she announced the FCA’s intention to launch an industry-wide survey of wholesale banks and insurers with a view to collecting data on the volume and type of incidents of non-financial misconduct within firms. This survey has now been published by way of an official notice to relevant firms to provide the requested information. In this blog post we explore what is being asked of such organisations in that survey, and what it might mean for firms more generally.
The survey
Pursuant to its governing legislation (the Financial Services and Markets Act 2000) (FSMA), the FCA has the ability to require entities that fall under its jurisdiction to provide specific information required in connection with the FCA’s functions. The issuance of this survey demonstrates the FCA’s exercise of that power. If firms do not respond to the survey, the FCA can exercise its enforcement powers under FSMA.
The survey is being sent out in batches and the first instalment has been sent to all regulated Lloyd’s Managing Agents and London Market Insurers (including P&I Clubs) and Lloyd’s and London Market Insurance Intermediaries (and Managing General Agents).
Central to the FCA’s information-gathering exercise is to collate statistics that relate to the experience of non-financial misconduct in firms that are regulated by the FCA. With that in mind, the survey asks for data on the following topics across 2021, 2022 and 2023, with such data separated for those holding senior manager functions and other individuals:
- The number and type of non-financial misconduct incidents recorded (e.g. sexual harassment, bullying, discrimination);
- The method by which these incidents were detected (e.g. whistleblowing, surveillance within the firm); and
- The outcomes of those incidents (e.g. dismissal, written warning, non-disclosure agreement, employment tribunal claim).
The FCA has made clear in the letter that the non-financial misconduct data that they are collecting includes incidents that took place at the office, working from home, working offsite and social situations related to work. Although the data collection does not include private events that have no connection to work, it would include staff social events and client entertainment. This is consistent with the approach taken by the FCA in its consultation paper to proposals of how non-financial misconduct should be treated when considering the Conduct Rules.
The survey also asks high-level questions on the following topics:
- Incidents being referred to the relevant regulator;
- Governance and management information;
- Appointed representatives;
- Diversity and inclusion policies; and
- Remuneration, disciplinary and whistleblowing policies and procedures.
The full questions are contained in a document appended to the notice, which is not publicly available. It is mandatory for all firms who have received the survey to respond to it by close of business on 5 March 2024.
What does this mean for firms?
Clearly firms in receipt of this notice will have to gather three years of internal data in order to respond to the FCA within a relatively short timeframe. The FCA has emphasised in the notice that it is not interested in information relating to specific allegations and, whilst personal information should not be included in responses, the FCA has assured recipients that such data will be handled with the utmost confidentiality. Moving forward, it would be prudent for firms who have not already done so to start recording data in relation to non-financial misconduct in a way that would allow them to quickly respond to any further questions from the FCA for this type of data (for example, if another notice is issued in subsequent years).
More broadly, the issuing of this notice demonstrates the FCA’s continuing intent to tackle non-financial misconduct in the workplace, and its expectation that, in doing so, it will have the full co-operation of firms that fall within its jurisdiction.
It’s also worth mentioning the Worker Protection (Amendment of Equality Act 2010) Act 2023 which is expected to come into force in Autumn 2024. The Act introduces a new duty on employers to take reasonable steps to prevent sexual harassment of employees in the course of their employment. The Equality and Human Rights Commission and Employment Tribunals will be empowered as part of the introduction of the Act to respond with enforcement action and up to a 25% compensation uplift if employers are found to have fallen foul of the duty.
Ahead of this legislation coming into force, and now given the increased interest from regulators on this topic, employers will want to ensure that they are doing what they can to mitigate the risk of issues of non-financial misconduct in the workplace. Steps worth considering include: drafting and keeping anti-harassment policies up to date, ensuring appropriate promotion of policies, running training, running staff surveys and exit interviews to understand potential issues and addressing them and having effective reporting procedures in place.
For more information, please feel free to reach out to your usual Freshfields contact.
