Reports of non-financial misconduct increase by 72% in three years, according to FCA survey

The insurance sector has, once again, come under scrutiny after the FCA published the results of a its survey on culture and non-financial misconduct in the financial services sector, revealing a substantial rise in reports of incidents between 2021 and 2023.

The regulator sent a survey to 1,028 firms in February 2024 to assess how investment banks, brokers, and wholesale insurance companies detect and respond to incidents of non-financial misconduct, such as bullying, harassment, and discrimination.

The results reveal that the total number of incidents reported increased from 1,367 in 2021, to 1,670 in 2022, to 2,347 in 2023- an overall increase of 72% in the last three years.

According to the data, bullying and harassment accounted for 26% of reports, and discrimination 23%. Meanwhile, 41% of reports were categorised as “other”; perhaps motioning towards the complex, nuanced nature of personal misconduct which can make categorising issues challenging. Many firms, however, defined this category themselves, citing alcohol misuse, inappropriate or offensive language, misuse of expenses, and data protection breaches.

What did the survey suggest about the insurance sector?

It is not the first time that the insurance industry has faced scrutiny around the prevalence and handling of issues relating to non-financial misconduct.

In particular, Lloyd’s of London has been plagued by a reputation of widespread inappropriate behaviour and harassment, driven, in part, by a historically male-dominated demographic and culture of excessive drinking, as highlighted by a 2019 Bloomberg expose.

The market has spent several years attempting to improve culture, banning alcohol during working hours in 2017 and unveiling lifetime bans for inappropriate conduct as part of its campaign efforts back in 2019.

More recently, in September 2024, Lloyd’s began to consult on changing its byelaws to crack down on misconduct, seeking to modernise its approach and clarify potential outcomes. Proposed changes included a new, non-exhaustive list of unacceptable behaviour, such as harassment, bullying and discrimination.

The survey also follows on from the findings of the Sexism in the City inquiry, which explored the prevalence of non-financial misconduct in the financial services industry and problematic cultures which enable and fuel inappropriate conduct.

Data from the FCA’s survey suggests, however, that issues persist; London’s insurance insurers had the highest proportion of harassment and bullying claims, reported the highest levels of violence and intimidation, and faced the most disciplinary action.

Notably, 68% of medium sized wholesale broker respondents also reported no incidents, and the London market insurers portfolio was the only portfolio where five or more large firms of 250 or more employees (16%) reported no incidents from 2021 to 2023.

What does the data reveal about the culture of financial services?

The FCA stressed that an increase in reported cases could in fact be indicative of a healthy workplace culture, with a high reporting rate suggesting that employees feel safe and empowered to report misconduct.

Conversely, a low reporting rate could suggest that misconduct is going unreported, whilst perpetrators continue with impunity and victims are silenced. 

The report found firms identified incidents using a variety of methods, including through reactive routes, such as grievances or similar formal processes (50%), and alternative reporting routes, such as whistleblowing. 

Although firms also detected incidents through firm-led detection methods, the FCA noted that “[r]espondents in the insurance portfolios were less likely to detect alleged incidents through use of communications monitoring and surveillance.” 

Whilst in 43% of cases disciplinary or other actions were taken, in the remainder cases were either not investigated, not able to be concluded, not upheld, upheld with no other action, or investigations were ongoing. 

The report also noted that misconduct rarely resulted in remuneration adjustment, and, when remuneration was adjusted, it was mostly against unvested variable pay as opposed to fixed salary adjustment or clawback, for instance.

Notably, some forms of misconduct such as violence and intimidation were more likely to result in disciplinary action compared to other types, such as discrimination. This may suggest that issues such as discrimination require greater attention, an issue the FCA has considered, as evidenced by its September 2023 Diversity and Inclusion consultation.

Perhaps the most shocking finding of the survey was that relevant whistleblowing, and disciplinary policies were not in place at all firms surveyed. 

Furthermore, 38% of respondents stated boards and board level committees did not receive management information about non-financial misconduct. In addition, a significant number of larger firms had no formal governance structure or committee deciding outcomes and disciplinary actions, and/or no board-level management information on non-financial misconduct. This was more prevalent amongst London market insurers and intermediaries.

As a result, the FCA is concerned that larger firms’ governance and oversight of non-financial misconduct is falling short of expectations and that firms are ill equipped to detect and manage issues.

FCA Executive Director of Markets and International, Sarah Pritchard, noted the importance of firms utilising the data as an “opportunity to evaluate their own cultures and processes”. Pritchard also reaffirmed that “a healthy workplace culture is critical across the financial services” and that ignoring non-financial misconduct may create a “culture that can enable wrongdoing”.

Next Steps

The FCA hopes the survey results will drive momentum for firms to improve culture and the systems that will enable them to do so. In particular, the regulator has emphasised the importance of firms considering whether their relevant reporting processes, and governance and oversight arrangements are robust and can effectively tackle non-financial misconduct and improve culture. The FCA has clarified its expectation that firms discuss this at both senior management and board level.

Firms should also use the survey data to benchmark themselves and to consider and address areas for improvement. Specifically, firms should ensure compliance with regulatory requirements relating to whistleblowing, remuneration, regulatory references, and fit-and-proper assessments, and review existing governance and oversight arrangements to deal with non-financial misconduct.