Culture and conduct

We predict in 2022 that the FCA will continue to focus on diversity and inclusion as a driver of culture and conduct within firms and use it as a key determinant for permissions, authorisations and, in the longer term, enforcement activity.

Why?

• The FCA/PRA and Bank of England made clear in their Discussion Paper (DP 21/2) that there is strong positive link between D&I and good risk management and good consumer outcomes.
• The same concerns about D&I on listed company boards are being raised in the FCA’s CP 21/24 which seeks to change the disclosures required around diversity in the listing rule requirements and increase transparency and accountability.
• Nikhil Rathi (the FCA CEO) has also talked about introducing a 6th Conduct Question on D&I to ensure that management teams are diverse enough to provide the right challenges and good customer outcomes.
• We are increasingly seeing the topic of D&I raised in Senior Manager interviews and applications for authorisations, and not as an add on but as a central issue to how firms are operating.

Prediction author: Emma Sutcliffe

We predict in 2022 there will be 2-3 Senior Manager enforcement findings, particularly in relation to issues relating to systems and controls and compliance failures.

We also predict the first, long awaited, final notice against a Senior Manager for breaching the duty of responsibility.

Why?

• The SM&CR rules have been in force for Banks for over 5 years now, and other firms for 2 years, which increases the likelihood of a significant SM case.
• The FCA’s Enforcement data in it is Annual Report for 2020/21 showed that there had been a significant reduction in fines against individuals (3 in 2019/20 and 2 in 2020/21 compared with 8 in 2018/19) suggesting a backlog in cases.
• This compares with a figure of 21 Senior Manager cases in Enforcement at the end of 2020 with a significant number holding SMF 16 and 17 positions**.
• The FCA is consistently including a close review of the Senior Managers in any case it refers to Enforcement and has demonstrated an appetite, as per Mark Steward’s comments, to make referrals even if the outcome is to drop the case.

*we note we have made this prediction for over a year now! The pandemic has caused the number of FCA enforcement cases to slow down particularly with regard to individuals, who often appeal.

**data comes from FOIA requests which inevitably do not raise questions in a consistent way.

Prediction authors: Emma Sutcliffe, Richard Sims

We predict in 2022 we will see 20% more whistleblowing concerns raised than as at pre-pandemic levels.

Why?

We expect to see more whistleblowing concerns raised because:

• the requirements of the EU Whistleblowing Directive will be implemented by businesses across Europe, including to provide internal reporting channels that are sufficiently safeguarded;
• in light of the Directive, businesses are focussed on reviewing their policies and processes, and raising awareness of them among their workforce through training and education programmes;
• we have seen campaigns launched by the FCA and UK whistleblowing charity Protect, which aim to encourage whistleblowers to speak up;
• the pandemic, #MeToo and #BlackLivesMatter campaigns have contributed to an increased willingness in employees to speak up;
• there is a new whistleblower environment emerging from the pandemic and there are heightened risks around remote working and lack of oversight;
• we are seeing continued focus on ESG in which whistleblowing plays a key part in maintaining a healthy corporate culture, and more and more businesses are recognising the importance and benefits of an effective speak up culture; and
• due to this increased focus on whistleblowing, the level of awareness and trust among whistleblowers to use internal arrangements will likely to continue to increase. Protect reported that the number of whistleblowers who raised their concerns internally increased from 78% to 93% since their last report.
• Protect saw an 20% increase in whistleblowing cases in 2020 versus 2019.

Prediction authors: Andrea Finn, Jemima Coleman