Non-financial Misconduct and Culture: A Reminder for FCA-Regulated Firms in the UK

Firm culture remains a key topic on the Financial Conduct Authority’s (FCA’s) radar this year. In a previous alert, we discussed the FCA’s proposals for all FCA-authorised firms to better integrate non-financial misconduct (NFM) considerations into their senior manager and certification regime (SMCR), including rules for staff fitness and propriety assessments, the FCA Conduct Rules, and threshold conditions for firms.

Following those proposals, on 4 February 2025, the FCA published a speech by its chief operating officer, Emily Shepperd, on culture within firms. In that speech, Shepperd identified NFM as one of the clearest warning signs of a failing culture within an FCA-authorised firm and urged those firms to carefully consider the kind of culture they are creating.

Unpacking the Speech

Shepperd highlighted the following points:

• The relationship between culture and conduct: A common theme in FCA investigations into failures of consumer protection or market conduct was that failings in culture and governance were at the root cause of those failures in decision-making. In her view, a firm’s culture shapes its actions at every level and, by consequence, drives its conduct. Given a firm’s culture has a direct impact on outcomes for consumers, markets, and the UK economy, Shepperd indicated it would continue to be a regulatory concern.
• Healthy culture drives growth: The FCA supports the government’s mission to encourage economic growth. Achieving that growth in the financial sector will involve taking on greater risk, and the risk-taking required for long-term growth will rely on a foundation of a healthy firm culture. The most critical ingredient that will enable firms to work effectively and promote inclusive growth is the psychological safety of its people — i.e., the ability to speak up, challenge ideas, and encourage diverse perspectives that support better decision-making.
• Toxic culture: A recent FCA study found that across about 1,000 wholesale financial firms, there were 2,347 allegations of non-financial misconduct in 2023 — i.e., approximately nine per day. The number of allegations could not be seen purely as isolated incidents and were indicative of a toxic culture at some firms. Should firms turn a blind eye to toxic behaviours, it would have a direct impact on their ability to attract and retain the best talent and create a psychologically safe environment for better decision-making. As a result, toxic culture would be treated by the FCA not only as a moral issue but also a regulatory one. 
• Tackling toxic behaviours: The FCA has been updating its rules and guidance on NFM and expects to set out more detail on proposed next steps shortly. The FCA expects its updates will dovetail with the government’s planned activity involving employment rights, gender action plans, and disability and ethnicity pay gaps. However, the FCA also believes senior leaders have a key role to play in creating a culture of respect, integrity, and accountability. As a result, the FCA (along with other regulatory bodies) is reviewing the SMCR to make it more effective at tackling toxic cultures.

Points for Firms to Note

Shepperd’s speech sets down a clear marker of changes to come and the FCA’s continued focus on NFM. For FCA-authorised firms, upcoming consultations on the SMCR will show the changes the regulator is considering to that regime.

Given the FCA’s actions to date, FCA-authorised firms should continue to assess what steps they are taking to promote a healthy work environment. Examples include:

• Whether the firm’s policies and procedures are clear, fit for purpose, and up to date so that employees are able to raise their issues or concerns. This includes whether there is sufficient and appropriate training being provided to staff (particularly senior managers) on these procedures and whether regular discussions take place regarding the firm’s actions to promote a healthy culture (and identification of areas of improvement). In addition, policies and procedures dealing with investigations and disciplinary proceedings arising as a result of NFM should be reviewed. 
• Depending on its size and scope, whether the firm has clear diversity and inclusion objectives in place and a realistic plan for meeting those goals and measuring progress. This includes ensuring staff have adequate knowledge of the firm’s diversity and inclusion strategy.
• What risk assessments the firm conducts to help identify scenarios in which employees may feel less comfortable raising their concerns and how these can be mitigated. For example, whether steps are being taken to connect junior employees with more senior contacts outside of their immediate departments and whether mentor support is being offered to employees.
• Whether allegations of NFM are being appropriately monitored and assessed and whether the allegations suggest certain trends or systemic issues in certain departments or roles.
• Assessing the steps the firm is taking to address allegations employees have raised — i.e., whether its grievance and investigation procedures remain fit for purpose, whether investigators or decision-makers (internally or externally) have sufficient independence and authority to reach their outcomes objectively, and if there are clear and transparent steps being taken as part of any investigation to ensure the integrity and suitability of the outcome.

Please reach out to your Goodwin contact or any of the contacts below should you want to discuss any of the matters raised in this briefing.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.