"Non-financial misconduct, such as serious personal misbehaviour, bullying, discrimination and sexual misconduct in the workplace, now fall squarely within the reach of SMCR."
Comprised of a collection of firm and sector-specific essays, which drew from a broad range of contributors - including BlackRock, The London Institute of Banking & Finance, and the University of Bath - each piece discussed the concept of ‘purpose’. Its aim was better understanding what constitutes good governance and culture within the financial services sector.
The message from the FCA was unequivocal: although the regulator does not prescribe a ‘one-size-fits-all’ culture for the industry, it considers that a healthy and ‘purposeful’ culture within firms “leads to better outcomes for consumers and markets, and healthy and sustainable returns for shareholders”. A month later, the FCA re-emphasised the importance of good governance in the sector in its 2020/21 Business Plan, in which the regulator further underscored the importance of the Senior Managers and Certification Regime (“SMCR”) in fostering healthy cultures and fair customer outcomes.
Evolving understanding of ‘healthy culture’
The FCA’s posturing in the area is important - the regulator has oversight over a large and diverse population of financial services firms, with its reach set to be extended further from December 2020 when the SMCR is expanded to cover benchmark administrators and appointed representatives.
Despite this expansive regulatory ambit, some common ground over what constitutes healthy cultures is emerging. Non-financial misconduct, such as serious personal misbehaviour, bullying, discrimination and sexual misconduct in the workplace, now fall squarely within the reach of SMCR. More specifically, the FCA has made plain that tolerance of non-financial misconduct will amount to a driver of unhealthy culture and senior managers who countenance or foster a culture of this kind will not be considered “fit and proper” under the SMCR.
In addition to the concept of ‘purpose’, the FCA in DP20/1 identified a further element as crucial to developing a healthy culture within firms: so-called ‘safety’. While ‘purpose’ encapsulates what a financial services firm should be trying to achieve (described by the regulator in the foreword as “the gravitational force that draws in and aligns teamwork, engagement, inspiration and creativity”), for a culture to be safe, the FCA states that employees must feel comfortable expressing their opinions and must be listened to when they do. Effective whistleblower protections, diversity and inclusion, and fostering psychological safety through a “speak up, listen up” culture are therefore of central importance to this mission.
NDAs as a barrier to change
Despite these positive developments, one continuing threat to the FCA’s goal of promoting purposeful and safe cultures is the ongoing use of non-disclosure agreements (“NDAs”) to silence whistleblowers or those speaking up against discrimination or harassment.
While the All-Party Parliamentary Group on whistleblowing has recommended that NDAs be banned in whistleblowing cases, and the Advisory Conciliation and Arbitration Service (ACAS) has published guidance for employers and workers to that effect in February of this year, it still remains unclear to what extent this position will be embraced by financial services firms.
The FCA has invested heavily in its ‘healthy culture’ initiatives, but without greater regulation, particularly surrounding agreements like NDAs, its work to bring about meaningful change in the sector will continue to be undermined.