6th May 2021
Shyam Raikundalia, Compliance Director warns firms need to understand the pressure is on when it comes to misconduct which does not fall within financial irregularities.
In recent months, the Financial Conduct Authority (FCA) has lit the touch paper to an area of compliance that has the potential to blow up in a firm’s face. The FCA issued its regular “Dear CEO” letter to every broker and insurer it regulates to spell out its concerns for the year ahead. Part and parcel of the latest letter has been a clear warning that non-financial misconduct will not be tolerated given the concerns the regulator has around its potential impact on the industry and its reputation.
The London market cannot say it is unaware of the issue. Lloyd’s has for some years looked to clamp down on inappropriate behaviour in the market and it is a campaign that has been enthusiastically picked up by the company market. Sadly, there remains a steady stream of media stories which highlight the misconduct in the market particularly around sexual harassment and the drinking culture with which the market has long been associated.
The pandemic has changed the way the market has operated and with a move to more remote working many firms have not seen non-financial misconduct as a major issue as they wrestle with the challenges that COVID has presented. However, the FCA has made it clear the pandemic cannot and will not be used as an excuse for non-compliance with the regulatory regime or for incidents of misconduct.
The pandemic has also presented a new dynamic when it comes to misconduct by employees. Prior to the pandemic, inappropriate behaviour and comments may have been centred in the office. As a result of the pandemic and the move to remote operation communication between staff has been switched to email, or video calls and therein lies a problem. While inappropriate behaviour is serious and cannot be tolerated in any environment, inappropriate comments and gestures in the office along with bullying tends to be confined to those who witness the incident.
As we have seen in recent months, misconduct during a video meeting has the potential to be shared and go viral, with the case in point, the hotly disputed parish council meeting that descended into farce. Firms need to ensure their staff are aware of the need to ensure any communication is carried out to the standards that would be expected within the company’s behaviour policy, be it with fellow colleagues or externally.
One of the key issues is the requirement to ensure that employees have the ability to call out poor behaviour in a safe and secure way. The FCA requires firms to have a whistleblowing hotline and a member of the senior management team has responsibility to ensure its proper operation. We have seen firms which have appointed a more junior employee to the role, but whoever is given the responsibility needs to ensure that they deal with notifications in an independent manner.
The FCA operates its own telephone hotline and has a specific email address should colleagues be reluctant to use the internal systems. However, the FCA contact details do not seem to be well publicised and are rarely found on company internal or external sites.
The penalties for non-financial misconduct can be severe as can the penalties if a firm is deemed to have failed in the way it has handled any complaints.
The regulations are also regularly updated, and compliance teams face a constant task of monitoring the announcements and ensure the necessary changes to policy are not only communicated but implemented and evidenced.
What is certain is that the FCA is likely to demand that companies remain on their best behaviour when it come to the identification and handling of inappropriate action within their firms. Our team are working with an increasing number of companies who require compliance functions but do not have the size or capabilities to meet their responsibilities in-house. In the current environment this looks set to continue.
For more information, please contact Shyam Raikundalia, Compliance Director on Shyam.Raikundalia@davies-group.com.
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