Understanding the FCA’s Latest Announcement on Non-Financial Misconduct

Corporate misconduct can extend far beyond just financial crimes. 

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With a traditional focus on financial misconduct among regulators, unethical behaviours like discrimination, harassment, bullying, and victimisation can end up overlooked and unchecked.

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To combat the largely under-researched challenge of non-financial misconduct in the UK, the Financial Conduct Authority (FCA) released a public letter, accompanied by a survey focused on gathering data about non-financial misconduct incidents over recent years. 

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As the FCA strives to broaden the definition of misconduct, businesses and firms across the UK need to consider how to improve their strategies for managing and mitigating the risk of internal misconduct. 

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What does the FCA announcement on non-financial misconduct say?

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Published in early February 2024, the FCA’s letter and survey aim to increase regulatory awareness and business oversight of non-financial misconduct. 

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The letter requests that recipients of these documents submit data regarding incidents that took place not just in the office but also in work-from-home, offsite work, and work-related social environments. This request encompasses many work-related events as well, such as social gatherings, offsite training, conferences, client entertainment, and sponsored events. 

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In terms of handling internal incidents, the FCA now expects non-financial misconduct to be treated with the same seriousness as financial misconduct. 

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Per the FCA’s public letter:

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“Our publicly expressed view sets out that non-financial misconduct is misconduct and not an additional principle. Non-financial misconduct includes individuals’ conduct for issues such as (but not limited to) bullying, sexual harassment, and discrimination whether in or outside the workplace.”

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Additionally, the survey requests the following data for 2021, 2022, and 2023:

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• The number of non-financial misconduct incidents recorded by category and the method used to detect each incident (i.e. whistleblowing software)
• The number of non-financial misconduct incidents recorded by category and the outcomes of those incidents (i.e. written warnings, dismissals, etc.) 
• The number of additional outcomes recorded for any incident (i.e. non-disclosure agreements)

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For businesses concerned with reporting this data, the FCA notes that it is not requesting specific details about each incident, but rather more general data regarding the amount and types of incidents occurring.

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The FCA further affirms its understanding of this data’s nuance, stating that firms with higher amounts of incidents can “indicate that there is an effective and transparent speaking up culture within a firm,” while a lack of data is not always an “indication of an environment that is working well.”

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The implications of the FCA announcement

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Broadening the definition of misconduct to encompass non-financial misconduct has profound implications for businesses, as it significantly expands the scope of regulatory scrutiny and imposes new challenges on compliance efforts and corporate culture. 

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To meet the requirements of new regulations, firms must adapt their policies, procedures, and risk management frameworks accordingly. The FCA’s survey on non-financial misconduct is likely to pave the way for new regulations regarding how businesses record, manage, and mitigate non-financial misconduct, making it vital to consider how such a change may impact operations.

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One major implication is the increased burden on businesses to monitor and report non-financial misconduct incidents. The FCA’s request for non-financial misconduct data over the past three years is sure to reveal many vulnerabilities in the various reporting systems and strategies currently in place. 

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As a result, businesses may need to invest in new technologies, resources, and personnel to effectively track and document non-financial misconduct, adding to overall operational costs.

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Moreover, the reputational and brand risks associated with non-financial misconduct are significant. 

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Incidents of misconduct violations can damage a company’s reputation, erode consumer trust, and result in negative publicity. In an era of heightened social awareness and activism, businesses may face increased scrutiny from stakeholders regarding their ethical and social responsibility practices should a non-financial misconduct incident go public. 

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Additionally, the regulatory requirements related to non-financial misconduct may necessitate changes in a firm’s organisational culture and values. Fostering a culture of integrity, transparency, and accountability is often the key to mitigating the risk of both financial and non-financial misconduct.

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Greater regulatory focus on non-financial misconduct ultimately poses significant challenges for businesses, requiring enhanced compliance efforts and improved internal reporting strategies. 

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Preventing non-financial misconduct at your organisation 

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How effectively a firm overcomes the challenge of non-financial misconduct comes down to the tools and technologies used to ensure secure and confidential reporting. 

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Whistleblowing software plays a crucial role in preventing and mitigating the risk of non-financial misconduct within organisations by providing employees with the highly accessible and anonymous channels needed to report incidents of unethical behaviour. 

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Implementing a comprehensive whistleblowing solution can benefit firms in four key ways:

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1. Whistleblowing software promotes a culture of transparency and accountability within the organisation. Offering employees a confidential platform to voice concerns and speak up without fear of retaliation encourages individuals to come forward with information about non-financial misconduct. This helps to uncover issues that may otherwise go unaddressed, allowing management to act promptly and investigate problems before they escalate.
2. Whistleblowing software acts as an early warning system for identifying and addressing non-financial misconduct. As regulators hone in on non-financial misconduct, having a clear system in place for reporting and recording this misconduct is essential. By simplifying reporting processes, organisations can swiftly respond to incidents and initiate investigations, proactively safeguarding their reputation alongside whistleblowers.
3. Whistleblowing software provides valuable data and insights for risk management and compliance purposes. For many businesses, adding new reporting abilities and internal policies to address non-financial misconduct takes time. By analysing trends and patterns in reported incidents, firms can identify systemic issues specific to their systems, allowing them to assess the effectiveness of existing policies and procedures.
4. Whistleblowing software enhances regulatory compliance and stakeholder trust. Having a well-defined strategy in place for reporting and addressing non-financial misconduct demonstrates to stakeholders and regulators that an organisation takes misconduct incidents seriously. This helps mitigate legal and reputational risks associated with non-compliance, as well as enhances trust and confidence in an organisation’s corporate governance practices. 

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Finding the right whistleblowing solution for your firm

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Integrating whistleblowing software into your corporate governance workflow aids you in avoiding the consequences of non-compliance. With regulators increasing their focus on misconduct to include both financial and non-financial incidents, it’s time to consider modernising your approach to whistleblowing.

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Confide offers secure and comprehensive capabilities for streamlining your approach to corporate governance. Whether it’s financial or non-financial misconduct, the Confide platform offers the sophisticated tools and anonymous reporting channels necessary to achieve true corporate integrity.

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Book a Confide demo today to get started. 

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