As financial services firms prepare for the FCA and PRA’s upcoming rules on diversity and inclusion, expected later this year, several preparatory steps can help ensure readiness.

Strengthening Internal Connections for Non-Financial Misconduct

Tackling non-financial misconduct is a cross-functional issue, requiring collaboration among HR, Risk, and Compliance teams to integrate processes effectively. Firms that make these connections now will be well-positioned for regulatory changes.

Increased Regulatory Oversight

The FCA’s proposed NFM framework has sparked intense industry discussions, with firms questioning how to practically integrate these nuanced elements into regulatory guidelines.

During a Treasury Select Committee hearing, MPs voiced concerns about the efficacy of “speak up” channels and whether current regulatory oversight can truly capture instances of NFM, especially where non-disclosure agreements (NDAs) are in place.

Following this hearing, the FCA announced it will gather data from select firms regarding their NFM case handling, including detection and resolution mechanisms like NDAs. Firms not included in this initial request should still anticipate more comprehensive scrutiny moving forward.

Enhancing HR and Conduct Practices

A thorough review of HR and conduct processes now will better equip firms to manage future expectations and strengthen their NFM approaches, establishing a strong base for implementing any regulatory updates.

Leading firms approach NFM with an integrated view, merging input from Risk, Compliance, Legal, and HR teams, and engaging Board-level support. This holistic strategy offers an advantage over isolating NFM management within HR alone.

Building a Trust-Centric Workplace Culture

Building a culture of trust is essential, allowing employees to feel secure in reporting any forms of unacceptable conduct. Clear, accessible “speak up” procedures, along with independent and impartial investigations, are crucial in this regard.

Leadership can further foster trust through open communication, practical in-person training to reinforce core values, and upskilling managers to handle these sensitive issues.

With the continued public and regulatory emphasis on NFM, firms will need a solid framework of existing culture and processes to smoothly transition into the new policy landscape when the final rules are introduced.