The regulators of the finance industry have published consultation papers setting out their proposals for increased diversity and inclusion in the sector to improve firms’ culture, reduce groupthink and unlock talent. The proposals from the FCA and PRA include new rules and guidance to make clear that non-financial misconduct, such as sexual harassment, is treated misconduct for regulatory purposes. We’ll speak to an employment lawyer who thinks that approach could pose difficult questions for firms in the sector.
The FCA and the PRA both send the same central message to firms which is they hope their proposals will result in more action being taken against people who engage in bullying and sexual harassment. Senior roles at regulated financial firms can only be held by people who pass a ‘fit and proper person’ test and the regulator’s proposals - which at the consultation stage - suggest including non-financial misconduct as a consideration in relation to that test. FCA chief executive Nikhil Rathi is quoted saying: “We have taken a lead among regulators in taking a clear stance that non-financial misconduct, such as sexual harassment, is misconduct for regulatory purposes. We’re strengthening our expectations on how the firms we regulate consider such misconduct when deciding whether someone is fit and proper to work within the industry.”
Anne Sammon has written about this in some detail for Out-Law where she highlights a potential challenge for firms in taking that approach. She says: “This addition is likely to be helpful for firms in that it is now clear that information that they hold about an employee or former employee relating to behaviour such as bullying or harassment should in some circumstances be included in a regulatory reference. The challenge for firms, though, will be in determining whether an issue is serious enough to be included in a reference, particularly bearing in mind the potential serious consequences for the subject of the reference.”
So, let’s consider that point. Earlier Anne joined me by video-link and I asked her how firms should tackle this:
Anne Sammon: “So, I think this is an area where you would definitely want legal advice in terms of whether your particular situation is something that is serious or not serious. As a general rule, my view is that anything that potentially involves criminal allegations is in that serious bucket and therefore definitely needs to be included on a regulatory reference. That doesn't necessarily mean that there has to have been a decision that there has been criminal activity, it’s just if the actions that we are concerned about could potentially be criminal then I think that's where we definitely cross the line into it needing to be included on a regulatory reference, but there are so many different factors at play that that's why it's so important to take advice on a kind of case-by-case basis. The challenge for firms with this potential new guidance around non-financial misconduct is that it covers bullying and harassment, and when we're talking about harassment, we're not just talking about harassment under the Equality Act, we're talking about any type of harassment. So, employers could find themselves in quite difficult positions having to make difficult calls on whether they put in a regulatory reference that an employee was found guilty of harassing another colleague, knowing that if they include that type of information that could well be the end of that person's career in the sector.”
Joe Glavina: “The FCA says it will provide some additional guidance at a later date setting out when conduct is, and is not, within the scope of its conduct policy. So, taking account things like whether the conduct occurs on the firm’s premises, whether it’s connected with the firm’s business or, perhaps, involves the firm’s clients, and so on. Do firms need to wait for that guidance before reviewing their own policies?
Anne Sammon: “So I suppose the good thing for employment lawyers is that a lot of the questions that the FCA is using as kind of their test of whether this was on the firm's business or not, are the tests that we're used to looking at from a vicarious liability perspective. So I would hope that lots of firms already have policies that sort of cover off these issues, but I think it's worth revisiting this. So, what do your policies on diversity, equality and inclusion say around harassment? Are your examples all focused on what happens in the workplace or have you gone slightly wider? So that people are very clear that if something happens, for example, at a work event that that is covered by the harassment policy. Are they clear that the way that they behave outside of work is also potentially relevant? This is where the importance of training comes in as well. We quite often deliver training to clients around what do we mean when we're talking about concepts like fitness and propriety? Where does the behaviour outside of work fit into that assessment? Quite often, when people are sitting in those session they are surprised by the extent of the regulators’ remit to look into their private lives.”
Joe Glavina: “You mentioned how treating this type of non-financial conduct as part of the ‘fit and proper person’ test could impact on an individual’s career, potentially ending their career in this sector. Do you think managers are fully aware of that?”
Anne Sammon: “I would hope so because for any of our organisations that have staff who are senior managers and certified, they should already be making sure that those individuals understand what's meant by fitness and propriety and fitness and propriety for a long time has covered behaviour outside of the workplace. So, we had that case back in 2014 about the BlackRock trader who was found guilty of fare evasion and that had an impact in that he was found not to be fit and proper, barred from working in the financial services sector in a regulated position. So for a long-time firms have known that that behaviour outside of work is definitely relevant to fitness and propriety. The piece that this sort of brings into play is kind of making a wider group of people aware of that, not least because we will sometimes see situations where someone is moving into a role where fitness and propriety becomes an issue and their behaviour prior to that point is also under scrutiny. So, if you're promoted into a certified position and you're suddenly subject to that test of fitness and propriety, you're not looking at your behaviour from the point of view of promotion, you're looking at your behaviour throughout your career, and that's particularly challenging for younger employees where a lot of their behaviour is scrutinised on social media.”
Anne’s article on this looks at this in more detail if you are interested. That’s ‘UK regulators’ diversity plans for finance industry’ and we’ve put a link to it in the transcript of this programme for you.
LINKS
- Link to CP18/23 – Diversity and inclusion in PRA-regulated firms
- Link to Out-Law article: ‘UK regulators’ diversity plans for finance industry’
