FCA asks about non-financial misconduct at insurance firms

The FCA has asked for statistics covering a three-year period and including the methods used to detect incidents as well as their outcomes.

In a significant move, the FCA has written to the insurance market asking firms to “provide information related to incidents of non-financial misconduct in your firm”.

The regulator says: “We are doing this as part of a sector-wide information gathering exercise and are requiring all regulated Lloyd’s Managing Agents & London Market Insurers (including P&I Clubs) and Lloyd’s and London Market Insurance Intermediaries (and Managing General Agents) to complete the attached survey.”

What makes this significant is that it moves monitoring for conduct risks from the status of ‘nice-to-have’ much closer to a regulatory requirement without specific regulation. In the letter, the FCA emphasises that: “Our publicly expressed view sets out that non-financial misconduct is misconduct and not an additional principle.”

Wholesale insurance market

The regulator references previous communication in which it said “the wholesale insurance market in particular has a long way to go in having an inclusive culture”.

The survey asks for high-level, aggregated statistics for the following areas for the years 2021, 2022 and 2023:

  • The number of non-financial misconduct incidents recorded (by type/category) and the method by which these incidents were detected (for example whistleblowing and surveillance within firm).
  • The number of non-financial misconduct incidents recorded (by type/category of incident, for example sexual harassment, bullying, and discrimination) and the outcomes of those incidents (such as dismissal, written warning, and complaint not upheld).
  • The number of further outcomes recorded (such as non-disclosure agreements and employment tribunals).

The letter goes to some lengths to make clear what is being asked for: “[w]e are requesting data that includes incidents that took place at the office, working from home, working offsite, and social situations related to work. This can include incidents that happened in any work-related capacity or event and may include events that have been organised through work, including staff social events, off-site training and conferences, client entertainment or sponsored events. It would not include private events organised by members of staff among themselves with no other connection to work.”

And it says: “We expect firms to have effective systems in place to identify and mitigate risks relating to non-financial misconduct.”

The information is being sought under section 165(1) of the Financial Services and Markets Act 2000 (FSMA), and it is a mandatory requirement for firms to complete the survey. Recipients are reminded that the FCA has the power, under the terms of the FSMA, to “require the production of documents and the provision of information by authorised persons”.

Sexism in the City

The move signals the FCA’s determination to follow up on commitments it made to MPs in the Sexism in the City review. The review was sparked by an increasing number of high-profile instances of discriminatory behaviour coming to light, such as the Odey Asset Management scandal.

Rob Mason, Director of Regulatory Intelligence at Global Relay, said: “This is very big news. It opens insurers up to requiring a means to measure culture effectively.”

Questioned by Mason during a fireside chat staged at Global Relay’s London HQ in front of an audience of senior regulatory professionals, Jamie Bell, head of secondary market oversight at the FCA, indicated that insurers were not being specifically targeted but were simply the first on the list and that the regulator would be writing to thousands of other firms in the coming weeks.

Bell said that the important thing to note is that the FCA is “looking for headlines” rather than “trying to get under the skin of individual cases” and that it was trying to understand what “control frameworks are in place” and “what firms have found”.

Mason added that “this initial focus on insurance forms is unlikely to be random. We may see something more on that sector from the regulator.
Even large insurance institutions have tended to lag behind banks in terms of close regulatory scrutiny and this may all be about to change. But as the message reaches a wider audience, there will be a larger number of firms who may struggle to complete the questionnaire and not appear anomalous to the pack!”