By Dr Amanda Salter

Tackling non-financial misconduct is neither plain nor simple.

Used to describe inappropriate behaviour within a financial services firm which does not directly relate to its financial business activities, regulators are making it clear that non-financial misconduct is frowned upon and firms have an obligation to eradicate it. This includes bullying, harassment, discrimination, and other inappropriate behaviour that is detrimental to workplace culture and could harm stakeholders.

Culture Change

Why is non-financial misconduct an issue for banks whose core functions are financial in nature?

Increasingly, financial regulators are of the view that the lack of integrity is an indicator of poor firm-wide culture. Numerous studies support this assertion that a toxic culture is directly correlated to increased risks of poor decision-making and/or breach of regulatory standards.

In September 2023, the UK Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) jointly issued their Consultation Paper CP23/20: Diversity and Inclusion in the Financial Sector – Working Together to Drive Change, which set a direction of travel. The standard setters state their position clearly: “When misconduct such as discrimination also passes unchecked, this can create work environments that are permissive towards further wrongdoing, and in which harm to customers and markets is more likely to occur.

“Additionally, we consider certain instances of non-financial misconduct to be so serious that confidence in regulatory standards is undermined if we do not take action. Our proposals can play a further role in upholding market integrity by enhancing public confidence in the financial sector.”

After the global financial crisis, a time when probity and public perception of banks hit rock bottom, regulators emphasised the need to create a speak-up culture as central to the regulatory overhauls required to restore trust in the sector. Creating a supportive work environment where non-financial misconduct is not tolerated is the next step towards achieving this goal.

This is exemplified in the Basel Committee on Banking Supervision’s (BCBS) revised Core Principles for Effective Banking Supervision issued last April.

The Core Principles are intended to be a living standard that evolves over time in response to emerging risks and trends. For instance, its updated provision on diversity expresses that board members are bound to exercise ‘duty of care’ and ‘duty of loyalty’, which includes upholding whistleblowing policies and procedures that protect employees from reprisals or other detrimental treatment.

Clearly, the Core Principles support the view that wresting non-financial misconduct begins by changing the tone at the top with a trickle-down effect on firm-wide culture. The de facto minimum standard for sound prudential regulation and supervision today includes widening the safety net to encourage individuals to speak up in order to effectively rein in non-financial misconduct.

When One Spoils the Bunch

The FCA and the PRA in the UK are slowly defining clear guidelines about non-financial misconduct, utilising every weapon in the locker, but this is a tough battleground with many moving parts.

CP23/20 received numerous responses from firms requesting clearer definitions and examples of terms such as ‘bullying’, ‘harassment’, ‘disgraceful or morally reprehensible’ and ‘serious instances’. Further clarification was also requested around where to draw the boundaries between behaviours in personal and private life.

The UK banking industry was expecting new guidelines to land in 2024 to clarify and strengthen expectations around non-financial misconduct, but these were delayed by the need to achieve a proportionate approach that aligns with upcoming employment legislation. Several proposals were axed, including a section on diversity and inclusion. Most recently, regulators have announced that ‘next steps’ will be set out in the later part of 2025, prompting some to speculate that there might even be another consultation in the offing.

Despite the fluidity and delays to guidelines, regulators continue to strongly signal their commitment to changing the norms and culture at financial institutions.

In a landmark decision of its kind, in 2021, the FCA banned Jon Frensham, an independent financial advisor, from performing any regulated activity as he lacked the integrity to work in financial services after being convicted of sexual grooming of a minor and failing to inform the FCA of the decision by the Chartered Insurance Institute not to renew his Statement of Professional Standing and to expel him from membership.

More recently, on 17 March 2025, millionaire fund manager Crispin Odey, was slapped with a GBP1.8 million fine and banned by the FCA from working in the UK financial services industry for a lack of integrity. It is a clear-cut instance of abuse of power as alleged by the 13 women who accused the hedge fund titan of harassment, abuse, and fostering a toxic workplace culture (see Fall of the House of Odey on page 46).

It is important to note that the FCA investigation and sanction did not focus on Odey’s alleged sexual harassment or abuse, but on his attempts to obstruct the internal disciplinary process, including firing the entire executive committee and other breaches of regulatory requirements at his financial firm.

In October 2024, the FCA published the results from a survey about incidents of culture and non-financial misconduct between 2021 and 2023 (see Strictly Numbers on page 47). The results, perhaps unsurprisingly, revealed widespread issues. The highest proportion of incidents was classified as bullying and harassment, followed by discrimination and then sexual harassment. In the analysis of this survey, the FCA stated an expectation for firms to discuss non-financial misconduct at the board level, consider steps to improve culture, and address ongoing risks related to non-financial misconduct.

Stop ‘Rolling Bad Apples’

To what extent might Asia-Pacific reflect the FCA’s approach and guidelines? Contextualisation is crucial and it is necessary that the region define its own approaches, methods, and boundaries of non-financial misconduct.

Whilst few regulatory agencies in the region have prioritised this, with most viewing this to be the purview of conduct risk management rather than a firm-wide culture issue, Hong Kong and Singapore are two of the earliest movers.

In 2021, the Hong Kong Monetary Authority (HKMA) began industry-wide consultation on its Mandatory Reference Checking (MRC) Scheme, which “seeks to address the ‘rolling bad apples’ phenomenon in the banking sector in Hong Kong, that is, to prevent individuals involved in misconduct from moving from one authorised institution to another, by enhancing the disclosure of the employment history of prospective employees taking up regulated roles among authorised institutions.” The HKMA has confirmed that harassment and bullying are considered to be non-financial misconduct that should be reported by firms under the MRC Scheme. Phase 1 came into effect on 2 May 2023; Phase 2 is scheduled for a mid-2025 implementation deadline.

The Monetary Authority of Singapore (MAS) has taken a differentiated approach. Although it does not explicitly regulate non-financial misconduct, the regulator has taken a series of steps since 2021 that gives it broader latitude to take action when it is required.

  • Amendments to its Guidelines on Fit and Proper Criteria in August 2024 which expand the definition and factors that are relevant to the assessment of a person’s honesty, integrity, and reputation.
  • Implementation of the new prohibition orders regime, effective 31 July 2024, which gives the MAS powers to prohibit individuals and financial institutions from engaging in regulated activities or managing financial firms if deemed unfit or improper. 
  • On 12 December 2023, the MAS announced that it will proceed with a mandated reference checks regime requiring financial institutions (FIs) to conduct and respond to reference checks.

Looking Ahead

Irrespective of which regime one operates under, forward-looking firms can already put in motion some best practice using the following four tips when dealing with instances of non-financial misconduct at the firm:

1. Plan thoughtfully before starting.

Pause briefly and avoid rushing headlong into the investigation stage. This is to ensure you have thought through the implications of what you are embarking upon and how you will need to go about it. Apply care, particularly in maintaining the confidentiality of the process and when considering whether the person under investigation needs to be suspended. Different stakeholders – various service lines, regulators, enforcement authorities – will have competing views on what needs to be done; these concerns will determine the limitations and define the parameters about what you can do and what you ought to be doing. For instance, in jurisdictions where regulatory references are required, this will have an impact on people’s careers on an ongoing basis. There is also the growing view that one should not just look at the person alleged with misconduct but also the role of their senior manager and the wider implications of a firm’s systems and controls. Tread carefully.

2. Make the process manageable.

Scope creep can occur. Be clear from the onset what it is going to cover and what it will not. This will set out the level of seniority for the stakeholders involved in the investigation, identification of the correct documents and/or statements, and establish who will be tasked with decision-making at each step of the process (such as conduct rule breaches, assessments) which, in turn, determines what and when they will get access to such information. Be mindful also of time management, particularly on what one commits to the regulators and ensure that all timelines are met in line with existing regulations to avoid further possible breaches at the firm.

3. Develop a communications strategy.

Financial firms have an overarching obligation to provide information to the regulators on an active basis. Err on the side of inclusion rather than exclusion by complying with the spirit of the rules. No firm would want the regulators to find out something by reading the morning newspapers. Even if an action doesn’t hit specific thresholds, it is recommended to get in touch with the regulators before news breaks to make them aware there is a potential issue even if you are unsure of where it might go. Internally, it is not always clear who needs to know what and an internal communications strategy will define what is and isn’t relevant to different levels of staff and/or committees. This is especially critical when there is an inherent judgment call to be made.

4. Ensure accurate records.

Details on decisions, what transpired, responses, and next steps are important and must be documented in case there is a request by the regulators. Years can pass before requests are made and accurate records are required. Without clear steps and detailed rationale about how a decision was taken, firms would have much more trouble trying to justify this later.

Even if regulators have yet to define a common approach to tackling non-financial misconduct, there is already enough language to identify parallel definitions in other sectors such as human resource and employment law.

When dealing with non-financial misconduct, the best way forward is to nip it in the bud.

Dr Amanda Salter is a consultant at Akasaa, a publishing and strategic consulting firm with offices in the UK, Malaysia, and UAE. She has delivered award-winning customer experience strategies for Fortune 500 companies. Dr Salter holds a PhD in Human Centred Web Design; BSc (Hons) Computing Science, First Class; and is a certified member of the UK Market Research Society and Association for Qualitative Research.