Non-Financial Misconduct – The FCA’s Frontier

Non-Financial Misconduct – The FCA’s Frontier

The Financial Conduct Authority (FCA) is the UK regulator responsible for all things FSMA (Financial Services and Markets Act 2000). Not satisfied with pouring over numbers all day the folks at the FCA have become increasingly focused on the culture of FCA-authorised firms and the non-financial conduct of their employees. In a letter from January 2020, FCA Executive Director Jonathan Davidson addressed the CEOs of the wholesale general insurance sector making the FCA’s position clear – Non-financial misconduct within authorised firms falls within the FCA’s regulatory remit as it is a root cause of industry failings and a barrier to progress. But what exactly is non-financial misconduct?

On September 2018 FCA Executive Director Megan Butler coined the term ‘non-financial misconduct’ in a letter to the House of Commons’ Women and Equalities Committee. Megan’s letter was primarily referring to sexual harassment but her sentiments about culture and diversity would go on to be applied to a range of undesirable behaviours which could indirectly detriment consumers and markets in the long term. The FCA have since published a variety of statements, including Jonathan Davidson’s recent letter, identifying conduct such as bullying, harassment, victimisation, and discrimination as examples of non-financial misconduct. These examples already have an established place in employment law but now FCA-authorised firms will have an additional incentive to discourage such conduct.

Discrimination – The unfavourable treatment of another on the basis of a characteristic which is protected by the Equality Act 2010, for example sex or race. This can occur through direct action or indirectly by way of a policy or practice having an unfavourable effect on that cohort. The FCA have put great importance on diversity and inclusion within firms and seem particularly keen to address discrimination at recruitment and promotion.

Harassment under the Equality Act 2010 – unwanted conduct related to a protected characteristic with the intention or effect of violating dignity or creating an uncomfortable environment. Behaviours of an intimidating, hostile, degrading, humiliating, or offensive nature can lead to claims of harassment or, where the unwanted conduct is sexual behaviour, sexual harassment. The reporting of sexual harassment has risen in recent years thanks to Megan Butler’s letter in 2018 and campaigns like MeToo. While the FCA are eager to address cultures within the sector which are tolerant to sexual harassment it is important to remember that the test for harassment is very broad and includes a wide range of non-financial misconduct the FCA intend to confront.

Bullying – Although there is no legal definition, test, or offence for bullying under UK law the FCA understand that bullying within a workplace can have a hugely detrimental impact on morale, retention, and productivity. Bullying can also lead to a variety of similar claims including direct discrimination and harassment, where the bullying is because of a protected characteristic, and harassment under the Protection from Harassment Act 1997, even when not on the grounds of a protected characteristic.

Victimisation – While keen to crack down on perpetrators of non-financial misconduct the FCA also want to ensure that employers are dealing with incidents appropriately. They have made it clear that they will use the manner in which employers manage complaints, grievances, and claims as a metric when analysing the culture of an authorised firm. Employers should remember that these may also be considered ‘protected acts’ under the Equality Act and that subjecting an employee to a detriment because of this action could give rise to a claim of victimisation.

 

Next steps that FCA-authorised employers should consider

• Jonathan Davidson’s letter made it clear that FCA-authorised firms have a positive obligation to promote open, supportive, and ‘healthy’ workplace cultures. The FCA acknowledge that there is no ‘one size fits all’ approach here but have identified certain areas where firms are expected to demonstrate positive action including:
  • Leadership;
  • Purpose;
  • Management and reward procedures; and
  • Governance, systems, and controls.
• Employers should consider introducing / updating their management guidelines and internal policies to direct consistent and fair decision-making. These could be particularly helpful in relation to recruitment metrics and complaint handling.
• All complaints, grievances, appeals, and claims should be taken seriously, and due process should be followed. The nature and extent of a complaint may not always be obvious at the outset so it important to stay objective and not to jump to conclusions. From a legal perspective it is also important to act fairly and not to exacerbate a tense situation, especially where there is a possibility of victimisation which can arise even when the original complaint is unfounded.  
• Decision-making processes should be recorded and documented. The FCA and employment tribunals will give credit where an employer can evidence and justify decision making, especially if they have been transparent throughout.
• As employees rise through the ranks they acquire greater power to affect a firms culture and, in some cases, a greater level of tolerance in response to their conduct. The FCA have, therefore, placed greater importance on the actions of senior managers both in terms of scrutinising non-financial misconduct and in their promotion of diversity and inclusion efforts. The FCA encourage firms to bear these in mind when appraising performance and considering promotions. Where improvements need to be made firms should also consider appropriate training for example general management skills; avoiding pitfalls like exclusion, intimidation, and favouritism; or equality and diversity training.