Dear Sir or Madam | Release Date: 6th February 2024
To read a shorter summary of this Dear Sir or Madam letter, click here.
To access the original FCA document, click here.
Long Summary
The Financial Conduct Authority (FCA) has issued a sector-wide information gathering exercise, invoking section 165(1) of the Financial Services and Markets Act 2000 (FSMA). This exercise targets Lloyd’s Managing Agents, London Market Insurers, including P&I Clubs, and Insurance Intermediaries, focusing on incidents of non-financial misconduct within these firms.
Background and Rationale
The FCA’s portfolio letter dated 20 September 2023 highlighted cultural issues in the wholesale insurance market, emphasising the need for improvement in handling non-financial misconduct, including discrimination, harassment, victimisation, and bullying. Nikhil Rathi, the Chief Executive of the FCA, stressed the importance of managing non-financial misconduct in his foreword to a consultation launched in September 2023. This focus aligns with the FCA’s objectives set by Parliament and reflects concerns about internal cultures that tolerate or ignore allegations of misconduct.
Scope of Non-Financial Misconduct
Non-financial misconduct is broadly defined to include bullying, sexual harassment, and discrimination, regardless of whether these occur in the workplace, during remote work, at work-related social events, or in other professional contexts. Incidents occurring at private events without work connections are excluded. The FCA aims to understand the prevalence and handling of such misconduct across the sector.
Survey Objectives and Content
The survey serves as a tool to collect data on the volume, types, methods of detection, and outcomes of non-financial misconduct incidents. This information will help the FCA gain insights into the occurrence of misconduct, establish baseline assessments for each sector, and inform supervisory work.
The survey, to be completed via Qualtrics, includes questions on:
- The number and types of non-financial misconduct incidents, categorised by type and detection method.
- Outcomes of these incidents, such as dismissals, warnings, or complaints not upheld.
- Additional outcomes like non-disclosure agreements or employment tribunals.
- The FCA also seeks to distinguish between incidents involving Senior Management Function (SMF) personnel and non-SMF, encompassing all incidents, regardless of prior reporting to the FCA.
Governance and Management Information
In addition to incident data, the survey includes high-level questions on regulatory references, governance and management information, appointed representatives, diversity and inclusion policies, and remuneration, disciplinary, and whistleblowing procedures. This broader scope of information aims to provide the FCA with a comprehensive view of firms’ approaches to non-financial misconduct.
Data Security and Management
The FCA reassures firms of the security and confidentiality of the data collected through Qualtrics. The information will be stored securely and managed in line with the FCA’s data strategy and privacy notice. Responses are treated as confidential under section 348 of FSMA, and any aggregated data published will be anonymized to prevent the identification of individual firms.
Legal Implications and Enforcement
Failing to comply with this notice may result in legal actions, including certification to the court, public censure, financial penalties, or search warrants. Providing false or misleading information is a criminal offence.
Deadline for Submission
Firms are required to submit their survey responses by the close of business on 5 March 2024. The FCA acknowledges potential challenges in data accessibility and advises firms to communicate any issues in providing the required information.
Take-Aways and Actions for Firms
- Complete the Survey – Firms must thoroughly complete the survey, providing detailed statistics on non-financial misconduct incidents.
- Effective Risk Management – Implement robust systems to identify, investigate, and address non-financial misconduct.
- Reporting and Transparency – Ensure accurate and comprehensive reporting of incidents, reflecting the firm’s commitment to tackling non-financial misconduct.
- Engagement with FCA – Communicate proactively with the FCA, especially regarding challenges in complying with the survey requirements.
Conclusion
The FCA’s initiative underscores its commitment to fostering a culture of inclusivity and accountability within the insurance sector. Firms are expected to engage fully in this exercise, contributing crucial data that will inform the FCA’s ongoing supervisory work and help address the broader issues of non-financial misconduct in the sector.