Diversity and inclusion (D&I) in the financial services and insurance sectors — non-financial misconduct

D&I reporting and monitoring are a key focus under the umbrella of ESG in which regulators are taking an increased interest, not least because of the positive impacts on business growth and corporate governance. Further to the consultation papers launched by the Financial Conduct Authority and Prudential Regulatory Authority at the end of 2023, (CP23/20 and CP18/23 respectively), it is clear that regulatory intervention was welcomed by the majority of participants in order to boost diversity and inclusion within their organisations.

Whilst the discussions considered standard reporting mechanisms, the papers also introduced the more controversial topic of non-financial misconduct (NFM) with proposals to better integrate NFM considerations into staff fitness and propriety assessments, the Conduct Rules (COCON) and the Threshold Conditions. This covers conduct in and out of the workplace, which impacts a person’s reputation and appears to go much further than any previous policy scope.

NFM has long been a consideration in regulated industries. In the case of Burrows, the FCA imposed a prohibition on a former investment manager for deliberately and knowingly, on numerous occasions, failing to purchase a valid travel ticket. The FCA determined that Mr Burrows lacked the requisite honesty and integrity and was therefore not fit and proper to conduct any function in relation to any regulated activity. Nevertheless, the CP broadens the scope and clarifies the extent to which a person’s conduct, not limited to the course of a firm’s activities, is relevant to a fitness and propriety assessment. This links back to the FCA’s statutory objectives of maintaining public confidence in the financial system and financial services industry.

The draft guidance would establish a default rebuttable presumption that serious NFM will be considered to compromise or undermine the perpetrator’s fitness and propriety. The scope includes instances of discrimination, bullying, harassment and similar behaviour towards fellow employees, which links directly back to the firm’s need to create safe and inclusive working environments to prevent such breaches.

This is an ever growing area of law, increasingly governed by regulators. Our expert regulatory and employment teams can assist with such initiatives to support the compliance with the new regulations, advise on implementing initiatives to prevent misconduct and provide training for staff and management as well as handle disciplinary hearings. For further guidance, speak to our experienced legal advisers.