Conduct, Culture and D&I

It’s fair to say that there are a variety of cultural and conduct issues for firms to tackle in the insurance intermediary space; incentives and remuneration, conflicts of interest, treating vulnerable customers fairly, evidencing the ‘customers best interests’ rule and many more. The FCA tries to tackle these with firms through handbook rules and guidance, thematic work and market studies. In addition, since 2017 it has produced 5 Conduct Questions that it believes regulated firms should consider. These are:

1. What proactive steps do you take as a firm to identify the conduct risks inherent within your business?

2. How do you encourage the individuals who work in front, middle, back office, control and support functions to feel and be responsible for managing the conduct of their business?

3. What support (broadly defined) does the firm put in place to enable those who work for it to improve the conduct of their business or function?

4. How does the Board and ExCo (or appropriate senior management) gain oversight of the conduct of business within their organisation and, equally importantly, how does the Board or ExCo consider the conduct implications of the strategic decisions that they make?

5. Has the firm assessed whether there are any other activities that it undertakes that could undermine strategies put in place to improve conduct?

Earlier this month the FCA (and other regulators) published the latest Regulatory Initiatives Grid, which helps firms and stakeholders plan by setting up what is in the regulatory pipeline.  It had the following on Diversity and Inclusion which highlights a forthcoming discussion paper and data request among other things.

“The PRA and FCA recognise the value of identity and cognitive diversity in improving the quality of decision making, leading to better consumer outcomes and safety and soundness. To support efforts in moving the dial in the financial sector, the FCA and PRA will be issuing a joint Discussion Paper on Diversity (planned for June), and a data request in Q1 2022.”

Taking wider FCA commentary in account, this suggests Diversity & Inclusion is an area on which the FCA is going to be increasing its focus. Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA stated ‘we are considering a sixth question in our future work which will interrogate firms on diversity and inclusion, another telling indicator of culture.’ Nikhil Rathi, FCA CEO said “This lack of diversity at the top raises questions about firms’ ability to understand the different communities they serve, and their different needs….In the years ahead, if we don’t see improvements in diversity at senior levels and better answers, we will also consider how to best use our powers.”

As the FCA continues its focus on conduct and culture, regulated firms will need to ensure that they don’t just talk convincingly about diversity and inclusion; they will need to be able to demonstrate and evidence their approach.  In this regard templates are widely available (see https://www.acas.org.uk/equality-policy-template for an example) or contact our HR Consultant Katherine Watkins on 01604 709509.