RegulationDec 24 2020

Dig deeper to eliminate unhealthy conduct

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Dig deeper to eliminate unhealthy conduct

Q. The Financial Conduct Authority recently said that “non-financial misconduct is misconduct, plain and simple”. How can I ensure my company is managing the increased focus in this area?

A. It’s a sad fact that discrimination, harassment, victimisation and bullying still occur in our workplaces. 

An even sadder fact that many companies continue to tolerate, turn a blind eye to or simply give a slap on the wrist when these instances occur. 

Non-financial misconduct has been on the FCA’s radar for a while now and is being targeted as one of the core symptoms of an unhealthy culture. 

Back in 2018, Megan Butler wrote that non-financial misconduct, such as sexual harassment, will be considered a breach of Senior Managers & Certification Regime rules – laying the groundwork for increasing FCA scrutiny on how companies handle allegations.

Fast forward to 2020, the FCA expressed concern about a spate of non-financial misconduct related incidents and laid out its expectations for embedding a healthy culture in the wholesale general insurance industry.

The regulator has been explicit: a clear purpose, appropriate governance and strong leadership are drivers of a healthy culture that shape good conduct.

To meet the FCA’s expectations you not only need to handle instances of non-financial misconduct effectively, but also you must understand why and how they occurred in the first place.

More than a single occurrence might indicate there is a culture where the leadership team protect each other; behaviour is tolerated if someone is a star performer; bullying is rewarded if it gets the job done or there is simply not diversity and inclusivity at the top.   

So, what can you do to proactively improve culture and reduce the risk of non-financial misconduct? 

First, consider whether you are rewarding the right conduct and the messages you send when making promotion decisions. An individual’s unethical behaviour can normally be traced back to a culture that allowed that behaviour to thrive. 

Two of the key things to consider are whether you have a clear purpose that guides the right behaviours and whether remuneration and rewards encourage the right behaviours.

Second, work out whether your business truly encourages a psychologically safe working environment. Do your employees regularly speak up and challenge decisions?  How is it actively encouraged? Or is there fear of challenging when people are mid-promotion cycle? How do those who are challenged reciprocate?

If colleagues don’t feel safe speaking up about general working practices, it is unlikely they will speak up if they witness misconduct or unethical behaviour.

Look beyond whistleblowing policies to more informal ways of encouraging a speak-up culture – think peer forums, or training for line managers on soft skills like active listening and empathy. 

Finally, empower senior managers to take the reasonable steps they are expected to take as part of their responsibilities.

The buck stops with them, so make sure they understand the policies and procedures for dealing with incidents should they occur. Whether reasonable steps were taken should be integrated into your annual fitness and propriety assessments of senior management functions. 

No reported incidents doesn’t mean there isn’t misconduct and unethical behaviour lurking unreported. So, open the bonnet and check it out. 

Juana Diaz-Landinez is an associate director at compliance consultancy TCC