SM&CR -Non-financial misconduct


The FCA opened the new year with a Dear CEO letter entitled “non-financial misconduct in wholesale general insurance firms”. Once again, the regulator used the theme of poor culture in financial services firms leading directly to harm to consumers, firms and the market. They have now added the impact on employees to this list. Whilst the letter was addressed to a specific sector, the whole financial services industry could learn from the themes expressed.

We’ve heard lots from the FCA (and its predecessor the FSA) about culture over the years going back as far as 2005, and the first discussions about treating customers fairly, but the focus has been on good outcomes for consumers. The extension of the Senior Managers & Certification Regime (SM&CR) to all FCA regulated firms puts the onus on firms and individuals to be responsible and accountable for the behaviours within the firm.

It has been reported that the FCA has seven open enforcement investigations into non-financial misconduct, unless or until there is public censure of any of the firms or individuals involved, we will not know the details of these investigations nor their outcomes.

What is non-financial misconduct and what can firms do to minimise it both in the workplace and with clients or customers?

Discrimination, harassment, victimisation and bullying are all forms of non-financial misconduct including sexual harassment, homophobia, racism and sexism and apply to the way a firm treats its staff and its customers or clients.

It has been reported that the FCA has seven open enforcement investigations into non-financial misconduct


The Equality Act 2010 defined nine protected characteristics, these are;

  • age
  • disability
  • gender reassignment
  • marriage and civil partnership
  • pregnancy and maternity
  • race
  • religion and/or belief
  • sex
  • sexual orientation

It is the role of the Board and Senior Management to ensure that staff are not disadvantaged in any way due to any of these characteristics and that customers are treated fairly and equitably.

Discrimination can be direct: in other words, one person is treated less favourably than another due to a protected characteristic – for example consideration for promotion, or indirect by way of policies or procedures – for example holding team meetings before normal office hours may mean parents who need to take their children to school will find it difficult to attend.


According to Citizens Advice, harassment is unwanted behaviour which you find offensive or which makes you feel intimidated or humiliated. There are several forms, one of them being sexual harassment, or unwanted attention from a colleague. Other forms of harassment include threatening behaviour or physical harassment, the use of emails to make threatening or untrue statements, or psychological harassment which involves making belittling remarks to an individual particularly in front of colleagues.


Bullying is a particular form of harassment and can be in private or in public. Some bullying may lead to a charge of constructive dismissal against the perpetrator.

The SM&CR puts the focus on the Board and Senior Management to engender a culture of diversity and inclusion. The FCA expects firms to take a holistic approach to the way the firm is governed, the way employees are treated, and what happens to them if they engage in non-financial misconduct.

Firms should begin to address non-financial misconduct risks in the same way they address other business risks within the organisation.


As with everything that happens in an organisation, leadership and the tone from the top sets the agenda throughout the firm. How does the Board communicate its definition and expectations of the culture and conduct across the business? Having done this, what steps has the Board taken to measure the quality of culture and conduct against these clearly defined expectations?

The treatment of whistle-blowers and the way in which their concerns are dealt with is another indication of how seriously non-financial misconduct is taken. Does senior management look for trends and how they address the issues raised is a good test of their leadership.


In early March, the FCA published a discussion paper on driving purposeful cultures. In introducing the discussion paper, Jonathan Davidson, FCA Executive Director of Supervision said: “The purpose of a firm sits at the heart of its business model, strategy and culture. Unhealthy cultures and purpose have been at the root cause of too many mis-selling and other conduct scandals in financial services. I want to see strong leadership creating purposeful cultures where it is safe to speak up and diversity is encouraged and listened to”.

Clarity of purpose is essential for any organisation and how this is articulated, managed and monitored is key but it needs to be carefully thought through and must resonate with staff, customers and other stakeholders within the business.

Rewarding and managing people

The days of reward based purely on achieving sales targets are long gone. Most firms have reward systems that consider behavioural based key performance indicators in addition to financial performance. Upheld complaints should be a key performance indicator and we accept this to mean complaints from clients and customers, do we consider internal complaints from colleagues?

Next Steps

Senior managers should review current processes and procedures in the light of the FCA’s Dear CEO letter whichever sector they are in and identify any gaps between the regulator’s expectations and their current arrangements. Having identified the gaps, take action to address them.

Such action should include enabling non-financial conduct leadership, in other words, senior managers should take responsibility for the firm’s culture, one way is to ask how the leadership team measures the quality of its culture and conduct of employees and, importantly, what against. A review of HR and compliance policies will reveal if they set the right tone and are designed to ensure that cases of non-financial misconduct are handled correctly

The extension of SM&CR required firms to draft statements of responsibility for all senior managers. These should include the management of risks associated with poor handling diversity and non-financial misconduct. A review of remuneration will reveal if reward systems are designed to discourage poor behaviours, it will also highlight any gender-based pay gaps that may exist.

Communication is the key, how are policy statements articulated, do staff understand what the firm expects of them? Dependent upon the size of your firm, you may want to engage with an external resource to assist with difficult situations. Coupled with communication is training. This is essential to ensure that staff know exactly how the firm has defined the expected behaviours and culture in respect of non-financial misconduct coupled with diversity and inclusion.

Expect the FCA to carry out further supervisory work in this area throughout 2020 and anticipate that they will ask your senior managers searching questions during visits and by way of online questionnaires.


About Author

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I am a diploma qualified, professional, well communicated person, with excellent financial services knowledge. I have a wealth of experience and understanding of financial institutions, the regulation surrounding protection, pensions, investment and mortgage advice and administration procedures. I have a depth of knowledge of the Training and Competence requirements and their application.

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