Josh Ballard

“The FCA in the UK has been actually quite vocal about non-financial misconduct being equally important as financial misconduct,” explained Kalika Jayasekera, Global Chief Compliance Officer and Board Director at SoftBank Investment Advisers.

Jayasekera was speaking alongside Mike Piwowar, Former Acting SEC Commissioner & Executive Director Milken Institute Center for Financial Markets as part of a recent Behavox webinar entitled Trends and Guidance for Managing HR Misconduct & Regulatory Compliance Risk.

One of the key topics discussed during the hour-long webinar was the increasing scrutiny that regulators in the U.K. and U.S. are placing on non-financial misconduct.

Jayasekera continued: “There’s a very significant regulation called the SMCR (the Senior Managers and Certification Regime) that came out first for banks several years ago, as a response to the financial crisis. And it was about making sure that senior management were held responsible for financial actions and issues that happen in companies.”

“In the UK, from December 2019, the FCA really expanded into non-financial misconduct. And it’s got to the point now where you can’t not do something about it. And, I don’t think it’s necessarily for HR alone to address these issues. It’s about working with HR, compliance, legal and senior management when these issues come up. So we are now in a culture where you can’t not act.”

The regulator’s impetus to crack down on instances of non-financial misconduct is an attempt to improve workplace culture across financial institutions. Toxic working environments are often breeding grounds for serious regulatory breaches and often stymy concerned employees from reaching out to their compliance team.

“At the end of last year, there was a ‘Dear CEO’ letter from the FCA about non-financial misconduct guidance. And they were basically saying how firms handle non-financial misconduct in their organization is indicative of their firm’s culture. The FCA viewed that, and a lack of diversity and inclusion, as obstacles in creating the right environment where people are comfortable to speak up and they [the FCA] put a burden on senior management to make sure there’s a culture that people can speak up.”

The increasing regulatory scrutiny on how firms address non-financial misconduct isn’t isolated to the U.K. Although the U.S. Securities and Exchange Commission (SEC) hasn’t issued any specific guidance relating to misconduct and culture, it is a topic that is gaining momentum with the regulator.

“Every year, the SEC puts out what’s called their national exam priorities,” said Mike Piwowar. “And this is a way for the SEC to be transparent with the public in terms of the use of their limited resources and their division of examinations.”

“So, I just did a quick look and searched for conduct, misconduct, or culture. If you go back to 2018, it was mentioned once in the SEC exam national exam priorities. In 2019, it was mentioned twice. In 2020, it was mentioned nine times. And, in the 2021 version of it, it was mentioned 12 times. So clearly the SEC is showing a trend towards more focus from their exam team on softer issues, non-financial misconduct issues.”

Time will tell as to whether the SEC will introduce defined regulations in order to tackle non-financial misconduct, but forward-thinking firms are already utilizing solutions such as Behavox Conduct to proactively identify issues such as racism, sexism, and bullying to protect and improve their corporate culture.

Watch the webinar in its entirety for further commentary on:

  • The latest regulatory measures on both sides of the pond to combat non-financial misconduct and what that means for firms
  • Why the appointment of Gary Gensler as SEC Chairman is likely to result in a tougher stance on enforcements
  • What firms can do to establish a culture of compliance and ethics with tighter controls, cross-functional collaboration amongst managers, and technology