21Jan

The latest Dear CEO letter from the Financial Conduct Authority (FCA) is specifically aimed at wholesale general insurance firms. However, the ‘non-financial misconduct’ issues covered in the letter could also be relevant to other authorised firms.

Jonathan Davidson Executive Director of Supervision, Retail and Authorisations at the FCA, starts by setting out the responsibilities of senior management to ensure that misconduct does not occur within their firms.

Here, Mr Davidson says:

“Following recent, publicised incidents of non-financial misconduct in the wholesale general insurance sector, I am writing to set out our clear expectation that you should be proactive in tackling such issues. We expect you to identify what drives this behaviour and, where appropriate, modify those drivers to shape proper conduct.”

Incidents of non-financial misconduct could include discrimination, harassment, victimisation and bullying, and there are no rules regarding these areas in the FCA Handbook. However, the letter says that if a firm has a poor corporate culture, it can lead directly to customer detriment, in addition to any harm affecting the firm’s employees.

The letter says that non-financial misconduct will be a key area as the FCA supervises senior management under the new Senior Managers & Certification Regime.

Mr Davidson’s letter emphasises that:

  • The FCA believes that a firm can only address issues of non-financial misconduct if they have effective leadership from senior managers who encourage a positive culture throughout the firm
  • Non-financial misconduct issues should be included in the fit and proper assessment of senior managers, as honesty and integrity are two of the issues included in assessments of fitness and propriety. The FCA will consider any “known relevant issues of non-financial misconduct’ when it approves a senior manager, and firms will then be required to consider any non-financial misconduct when they conduct re-assessments of a manager’s continued suitability for their role
  • The FCA expects firms to have effective whistleblowing procedures
  • The FCA expects firms to have incentive structures that encourage staff to act in the right manner

The letter concludes by asking CEOs to discuss the matter with the firm’s Board of governance (or equivalent) and to implement any changes that may be necessary. A firm’s responsibilities are summarised as:

“We strongly encourage firms to reflect on any inconsistencies between espoused (or implicit) purpose and strategy and business practice, people management and formal governance, systems and controls.”

The FCA will hold a webinar and a conference on the issue of firms’ corporate culture during 2020.

 

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article