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Non-Financial Conduct Risks & How To Mitigate Them

Non-financial misbehaviour – what is conduct risk?

Obviously financial misbehaviour comes under the guise of financial crime, fraud or embezzlement, but non-financial misbehaviour can come in lots of guises such as, discrimination, harassment, bullying and victimisation and more.

What is conduct risk and how can it affect your business? If these type of behaviours fly under the radar in your business, it promotes a culture where individuals do not feel safe to speak up, a crucial area of considerable focus for the FCA in their guidance of culture through the culture drivers they have highlighted. Through this increased supervision, the FCA is seeking to ensure that all companies understand the need to promote a healthy culture.

 

So what is the non financial conduct risk FCA definition? Actually, there isn’t one.

The list of examples of conduct that would be in breach of the requirement to act with integrity in COCON do not include non-financial misconduct, and the factors listed in FIT for assessing integrity focus only on financial misconduct. These are not exhaustive, and so do not exclude the possibility of non-financial misconduct constituting a lack of integrity or reputation, but there is no guidance in the Handbook on when that may be the case.

Integrity would appear to be the key and a good definition of that would be; ‘integrity’ connotes moral soundness, rectitude and steady adherence to a professional code. This could easily include office affairs, pornographic pictures, abusive and coercive behaviour, amongst many other areas that could be considered as controlling, bullying or intimidation. Inappropriate behaviour can be high on the list, especially at the Xmas party, but it goes far beyond that.

Are people just being oversensitive? 

While a few of this can be hard for senior management to spot, there’s some essential checkpoints you can utilise and typical indicators that will flag up any problems.
Consider non-financial misconduct when performing fitness and proprietary assessments and meetings. Sincerity, stability, integrity and credibility is every bit as important as competence to perform the role and the onus of this assessment sits with the company. Although HR can be a good source of these red flags, they may not be the best to investigate it, due to their company bias, unlike compliance, internal Senior Manager or external independent consultants.
It is vital that all head of departments and directors or partners take the obligation for tackling non-financial misconduct that happens on their watch. Any failure to take reasonable actions to deal with non-financial misconduct needs to be considered when considering the viability & performance of senior managers and other leaders. The SMCR relies on “Reasonable Steps” to be taken and recorded and you can see our blog on these, HERE.
Review your processes and procedures for dealing with non-financial misbehaviour. Look at it through an official and informal lens, making sure there aren’t any barriers to the creation of a beneficial environment and blameless culture where everyone feels it is safe to speak up. This kind of cultural pattern decreases the danger of unethical and anti-social behaviour. You must always bear in mind that speaking up doesn’t always come naturally to some people it’s just as essential to have a listening culture and senior managers need to promote this. Compliance interview techniques are particularly useful in this scenario to establish the proof.
To promote good conduct, create incentive structures the right conduct is rewarded through online reviews such as Trustpilot, Google, Feefo etc. In our experience, the majority of businesses recognise with the balanced approach of suggesting rewards aren’t solely based around financial efficiency, but wider things like having an internal anonymous voting system for nominating others and communications from the Board about the firm’s clear purpose can assist with reinforcing this, which is something many firms struggle with. Any culture change task requires us all to view the bigger picture and take a part in promoting a great culture.

If you need help with establishing, reviewing, assessing or investigating your non-financial conduct code or rewards system, contact us on 0800 689 0190 .

[1] https://www.fca.org.uk/news/speeches/opening-and-speaking-out-diversity-financial-services-and-challenge-to-be-met
[2] https://www.fca.org.uk/publication/correspondence/wec-letter.pdf
[3] https://www.fca.org.uk/publication/correspondence/dear-ceo-letter-non-financial-misconduct-wholesale-general-insurance-firms.pdf

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