FCA Issues Dear CEO Tackling Non-Financial Misconduct in Wholesale Insurance Firms

Published On January 23, 2020

23 January 2020: On 6 January 2020, the UK Financial Conduct Authority issued a letter to CEOs of wholesale general insurance firms setting out its expectations with regard to the tackling of non-financial misconduct.

The FCA expects firms to be proactive in their approach, to identify the drivers behind non-financial misconduct and modify those drives to shape “proper conduct”, where appropriate. The regulator recognises that a poor culture can often be the the root cause of major conduct failings across the industry, which harm consumers, employees and market participants alike. It highlights that “we view both lack of diversity and inclusion, and non-financial misconduct as obstacles to creating an environment in which it is safe to speak up, the best talent is retained, the best business choices are made, and the best risk decisions are taken.” 

In a bid to tackle these industry-wide cultural failings, the FCA has set out its expectations for firms and senior managers. It focuses on 4 “key drivers”, which promote healthy culture and minimise the potential for harm. These are: 

  1. Leadership
  2. Purpose
  3. Approach to rewarding and managing people
  4. Governance, systems and controls

The FCA believes that measuring conduct and mis-conduct is only addressed properly if there is an effective leadership team in place. It views SM&CR as a catalyst for the transformation of culture in financial services. Under SM&CR, senior managers must be approved and certified as fit and proper for their role – taking on board factors such as capability, honesty, integrity and reputation. The FCA further takes the view that “clarity of purpose is fundamental to culture”. A firm with a clear purpose is more likely to have clarity of direction, which will likely help define a strong culture and good conduct. It expects all firms to have in place strong whistleblowing processes and appropriate incentive structures. 

Over the course of 2020, the FCA aims to host a series of events, including a conference in March to share insights from their work so far. It will also host a CultureSprint, specifically for the insurance sector – to focus on psychological safety within firms.