Non-financial misconduct and NDAs in the spotlight 

The report is published in the context of an increasing focus of the Financial Conduct Authority on the extent to which firms’ weak management of non-financial misconduct – meaning poor behaviour that has a negative impact on co-workers and/or the working environment overall, for example discriminatory or bullying conduct – acts as an obstacle to effective risk management within financial services.  

The FCA reasons that non-financial misconduct is corrosive to effective risk management because an environment where poor behaviour exists and is not firmly dealt with is unlikely to provide the requisite level of “psychological safety” – confidence that an issue can be raised without fear of retaliation or retribution – to encourage individuals to report risks faced by their firms.

This, the FCA reasons, will have a detrimental overall impact on the firm’s ability to manage risk effectively.

Last year, the FCA and the Prudential Regulation Authority both consulted on draft proposed regulatory provisions designed to clarify the ways in which incidents of non-financial misconduct are relevant to existing regulatory rules, and to provide guidance on the regulators’ views on the significance of such issues.

A balanced approach should be adopted to the regulation of confidentiality clauses.

Under the FCA’s proposals, Individual Conduct Rule 1, which requires individuals to act “with integrity”, is to be redefined to include a much broader range of behaviours, including – as currently proposed – any behaviour that is not consistent with a “good working environment”, defined as an environment in which each employee feels “respected, valued and able to give their best”.

Clearly, this is a highly subjective standard.

When considering the potential for new regulation concerning non-disclosure agreements, it is important to remember that the whistleblowing rules set out in SYSC 18 of the FCA Handbook already prohibit settlement agreements being entered into with individuals that would prevent the individual from blowing the whistle.

The rules also make it clear that firms must have effective measures in place to protect whistleblowers from retaliation for raising genuinely held concerns.

It is also important to note that the regulatory definition of a whistleblow is wider than it is under employment law and includes concerns relating to breaches of a firm’s policies and procedures, as well as concerns regarding behaviour that harms or is likely to harm the reputation or financial well-being of the firm.

Relevant policies in this context will include those around bullying and harassment at work.