Guidance on dealing with misconduct ahead of regulation launch

The Financial Conduct Authority (FCA) must publish detailed guidance on how firms should handle harassment and sexual misconduct before the regulator considers enforcement under the Senior Managers & Certification Regime (SMCR), a law firm has urged.

The SMCR will apply to asset managers from 9 December 2019, placing upon the sector fresh administrative, regulatory and conduct requirements that banks and other large financial institutions have been subject to since 2016.

The regulation aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct, while encouraging a culture of personal responsibility throughout businesses.

Asset and wealth managers will soon face potentially unlimited fines if they fail to meet the new standards.

Over the course of 2018, executive director of supervision for wholesale and specialist investment at the FCA Megan Butler made clear her view that sexual harassment fell under the scope of SMCR’s conduct rules.

In a September letter to chair of the Women and Equalities Committee Maria Miller MP, Butler said: “Sexual harassment and other forms of non-financial misconduct can amount to a breach of our Conduct Rules… and the SMCR imposes requirements on firms to notify us of Conduct Rule breaches. We also expect firms to have appropriate internal whistleblowing and complaints processes in place.”

Speaking to Investment Week, financial regulation partner at Fox Williams and former FCA employee Peter Wright said there is currently a “grey area” for firms when it comes to handling sexual harassment and misconduct.

He said: “The FCA does not specify in their formal guidance, which firms have to comply with. A clearer line of sight would be beneficial. If they want to be clear about how it impacts the fitness and propriety test, they have to publish guidance. There has been a change in expectations and practice, but it is hard to reconcile when in reality there has not been a change in the law.”

The rise of whistleblowing

In December 2018 it was revealed whistleblowing complaints to the FCA regarding sexual misconduct and discrimination had increased by more than 300% over the course of 2018, with the regulator warning of “the re-emergence of cosy boys’ clubs and men-only networks”.

Wright acknowledged that sexual misconduct is a “high-profile” issue currently and added the FCA is not the only regulator taking similar action, with the Solicitors Regulation Authority currently pressuring firms to report harassment and deal with it in an appropriate way.

He said: “The FCA feels it needs to have a view, and it quite rightly believes these things should not happen and it does not expect to see it in regulated firms because it is part of the cultural agenda of SMCR. But when firms have to deal with specific situations where they have ‘the bullying line manager’, for example, they have to take decisions as how to deal with an individual.”

This article first appeared in Investment Week.


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