Whilst financial misconduct often attracts widespread attention, unethical behaviours such as harassment and bullying can be just as damaging to an organisation's reputation and financial health. Despite this, non-financial misconduct has historically received less scrutiny from regulators.
In a significant shift, the Financial Conduct Authority (FCA) has recently finalised new rules and launched a consultation (CP25/18) aimed at tackling non-financial misconduct across the financial services sector. These rules, which expand the scope of the FCA’s Code of Conduct to include serious cases of bullying, harassment, and violence, will apply to both banks and approximately 37,000 non-bank firms from September 2026. This move reflects the FCA’s broader strategy to promote healthy workplace cultures and increase accountability across the industry. You can find more guidance on CP25/18 here.
In March 2024, the Association of Certified Fraud Examiners (ACFE) published its bi-annual Report to the Nations which provides comprehensive insights into the nature and mechanics of occupational fraud. The ACFE Report found that 84% of fraudsters displayed at least one behavioural red flag.
The top two most common behavioural red flags identified by the ACFE Report are individuals living beyond their means or experiencing financial difficulties. While these behaviours aren't inherent to workplace wrongdoing, they're factors for organisations to consider when investigating misconduct. Fraudsters may be tempted to maintain an unsustainable lifestyle; while others may feel pushed by financial pressures, such as mounting debts or a problem gambling. In both cases, the transition into fraud often begins with small unethical actions that escalate over time. Understanding these dynamics is essential for organisations to effectively address misconduct and foster a healthier work environment.
Other behavioural red flags identified by the ACFE Report include: unusually close association with vendor/ customer (20%), control issues and unwillingness to share duties (13%), irritability, suspiciousness or defensiveness (12%), a 'wheeler-dealer' attitude (12%), and bullying or intimidation (11%). Unlike the behaviours above, this conduct could constitute wrongdoing in the workplace and indicates a strong correlation between non-financial misconduct and fraudulent activities.
In our own work we've observed that when unethical behaviour goes unchecked, there's a natural escalation in the individual's risk appetite.
In one example, we received multiple whistleblowing alerts that a finance director was bullying and intimidating their direct reports, and that they had frequently changed decisions last minute. Our investigation revealed that this behaviour was a means to cover up the fraudulent misreporting of accruals in the financial statements, and to create an environment where they could act without challenge.
We also investigated a procurement award where the supplier had ultimately failed to deliver. It transpired that the project manager had unfairly favoured the supplier throughout the procurement process through extensions to deadlines and inappropriate sharing of information. The project manager had previously been reported twice for bullying, but these red flags had been ignored by the business.
This pattern aligns with findings from the ACFE Report, which revealed that 85% of fraud perpetrators hadn't faced prior disciplinary action. Such lack of corrective measures can embolden individuals, leading them to engage in increasingly risky and unethical conduct.
When behavioural red flags are identified through whistleblowing alerts or grievances, organisations have the opportunity to take proactive measures to address potential misconduct. By promptly investigating these concerns, they can mitigate risks and prevent escalation, safeguarding their financial integrity and reputation.
Human resources teams play a crucial role in investigating and resolving behavioural misconduct, so collaboration between them and the investigation team is essential. This partnership facilitates thorough investigations through data sharing, helps maintain consistency across outcomes, and supports the implementation of effective corrective actions. However, organisations must ensure compliance with data-sharing policies and maintain separation between the people gathering facts and the ones who are determining disciplinary actions.
The ACFE Report found that almost half of perpetrators (45%) experienced one of the following HR-related red flags: poor performance evaluations (14%), fear of job loss (12%), and being denied a raise or promotion (11%). Although these red flags aren't indicators of subsequent fraudulent activity on their own, organisations can use this data to provide wider context when conducting investigations.
Through our work supporting clients with internal investigations, we’ve seen the value of internal data sources—such as exit interviews, engagement surveys, and grievance records—in identifying behavioural risk areas early. These insights, when combined with investigative findings, provide a fuller picture of organisational health and help pinpoint systemic issues. By embedding these sources into the investigation process, organisations can move from reactive-case management to proactive risk mitigation—strengthening culture, improving accountability, and reducing the likelihood of future misconduct.
It’s not just a cultural issue; it can be a precursor to financial fraud and cause long-term reputational damage.
Human resources and investigation teams must have well-defined information-sharing protocols to work effectively together while maintaining clear boundaries.
Exit interviews, grievance records, and engagement surveys offer valuable insights. Don’t overlook these tools when assessing risk and shaping interventions.
The link between financial and non-financial misconduct is more than theoretical, it’s a practical concern that organisations must address head-on. Unethical behaviours, whether driven by personal pressures or unchecked workplace culture, can escalate into serious financial wrongdoing. By recognising the warning signs and fostering a culture of transparency and accountability, organisations can better protect themselves and their people.
For more information contact Will Morris, Alex Booth or Manish Chudasama.
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