The FCA confirms the number of open enforcement investigations into ‘non-financial misconduct’

Sarah Hitchins

It is now just over a year since Megan Butler wrote her letter to the UK Women and Equalities Committee which coined the (now common) phrase ‘non-financial misconduct’.

Even before Megan Butler’s letter was published, many regulated firms were already looking at personal misconduct (especially sexual misconduct) committed by their employees through both employment and regulatory lenses. However, Megan Butler’s letter left the industry in no doubt that the FCA ‘view[s] sexual harassment as misconduct which falls within the scope of [its] regulatory framework’.

Although the focus of Megan Butler’s evidence to the Women and Equalities Committee was sexual misconduct, the FCA has since broadened its definition of the term non-financial misconduct. Based on its various statements on the topic, the FCA includes the following behaviours in its definition of non-financial misconduct: sexual misconduct, sexual harassment, other forms of harassment, bullying, discrimination, favouritism, exclusion and intimidation.

The FCA’s focus on non-financial misconduct is two-fold:

  • First, the FCA is interested in the alleged perpetrators of non-financial misconduct. For example, depending on the precise circumstances, substantiated allegations of non-financial misconduct may result in an individual being found to have breached one or more of the FCA’s Conduct Rules or call into question their fitness and propriety.
  • Second, the FCA sees instances of non-financial misconduct and firms’ responses to them as being indicative of firms’ culture. For example, the FCA has made clear that a ‘culture where sexual harassment is tolerated is not one which would encourage to speak up and be heard, or to challenge decisions’. The FCA has also commented that ‘the way firms handle non-financial misconduct, including allegations of sexual misconduct, is potentially relevant to [the FCA’s] assessment of that firm, in the same way that their handling of insider dealing, market manipulation or any other misconduct is’.

To date, the FCA’s focus on non-financial misconduct has been limited to statements made through its policy publications and speeches made by senior employees. The FCA has not taken any enforcement action against firms or individuals in connection with non-financial misconduct. However, that may change. The FCA has confirmed to us in response to a Freedom of Information Act request that it currently has seven open enforcement investigations into allegations of non-financial misconduct. Six of those investigations are into individuals and one is into a firm. No further details about these cases are available in the public domain, but they cover one or more of the areas outlined above that the FCA has indicated fall within the scope of non-financial misconduct.

 

Following the FCA’s public focus on non-financial misconduct, firms are reporting significantly increased volumes of non-financial misconduct allegations being made by employees. We are also seeing firms dedicate significant time and resource to ensuring that these allegations (which can be particularly challenging to investigate) are taken seriously and handled appropriately.

However, there remains considerable uncertainty in the industry about the circumstances in which the FCA expects firms to notify it of allegations of non-financial misconduct under Principle 11 of the FCA’s Principles for Businesses and at what stage it expects to be notified of these allegations, with firms reporting that they have received mixed messages from the FCA on this point.

Read comments below or add a comment

Leave a comment

Your email address will not be published. Required fields are marked *