The Financial Conduct Authority (FCA) isn’t taking the prevalence of non-financial misconduct sitting down.
In a ‘Dear CEO’ letter to undisclosed recipients, FCA’s Jonathan Davidson – executive director of supervision, retail, and authorisations – wrote: “Following recent, publicised incidents of non-financial misconduct in the wholesale general insurance sector, I am writing to set out our clear expectation that you should be proactive in tackling such issues.
“We expect you to identify what drives this behaviour and, where appropriate, modify those drivers to shape proper conduct.”
Davidson, in the 976-word letter seen by Insurance Business, said firms and senior managers are expected to embed healthy cultures while stressing that non-financial misconduct cannot be effectively addressed if there is no appropriate leadership.
“The Senior Managers and Certification Regime (SM&CR) and the Conduct rules were introduced for insurers on December 10, 2018, and for insurance intermediaries (and other solo regulated firms) on December 09, 2019,” noted the FCA official.
“The SM&CR provides an opportunity and catalyst to transform the culture in financial services. The regime emphasises the importance of senior managers taking responsibility for what happens in their areas.”
He went on to state: “As part of our approval of senior managers, an assessment of fitness and propriety will be completed. This looks at factors including competence and capability, honesty, integrity and reputation, and we will consider any known relevant issues of non-financial misconduct.
“In particular, a senior manager’s failure to take reasonable steps to address non-financial misconduct could lead us to determine that they are not fit and proper. We expect firms and the boards of firms to take this into account when considering the suitability and performance of (potential) senior managers and other senior leaders.”
Davidson also cited purpose; approach to rewarding and managing people; and governance, systems, and controls as among the key drivers that the FCA believes can lead to healthy cultures and reduce the potential for harm.
Meanwhile, in a separate development, the watchdog and the Bank of England have outlined plans to develop their data and analytics capabilities. The FCA, in particular, has set out a transformation strategy aimed at becoming a highly data-driven regulator.
