Financial services employers await the outcome of the consultation by the PRA and FCA on a new regulatory framework on diversity and inclusion. Whilst the final detail on regulating non-financial misconduct may be outstanding, it is not too early for employers to take initial actions, in response to the draft proposals, the recent FCA survey and the related comments in the Treasury Committee’s Sexism in the City report.
What do we mean by non-financial misconduct?
The FCA has explained that non-financial misconduct includes individuals’ conduct for issues such as (but not limited to) bullying, sexual harassment and discrimination whether in or outside the workplace.
What learnings can be taken from the FCA’s information request for wholesale banking and wholesale insurers?
The FCA required these firms to share with them, by 5 March 2024, details of the cases of non-financial misconduct they had handled during 2021 to 2023 and how these had been resolved. This threw up various practical challenges.
The concept of non-financial misconduct is still fairly new. The label of non-financial misconduct has not yet been embedded into the reporting systems operated by all firms. This means that wholesale firms required to respond and needed to look across various platforms, including whistleblowing reports, grievances, disciplinary outcomes and settlement proposals (proposals put forward both by the firm and by lawyers acting for employees) to seek out incidents of what is now understood to be non-financial misconduct. Instances could appear, or be alleged, in any of these processes, but whether they would have been classified and recorded as such will vary.
Whilst the detail of proposed changes to the FCA handbook on regulating non-financial misconduct is unconfirmed, the terminology of “non-financial misconduct” is here to stay. Firms should review their processes now to see how categorisation can be improved or adjusted to allow for more appropriate tagging or categorisation. We expect to see more data-gathering exercises in the future and capturing this information now will undoubtedly make those exercises easier. Please get in touch if you would appreciate some insight on what types of information to capture and categorise.
Takeaways from Sexism in the City
The House of Commons Treasury Committee report makes grim reading on the prevalence of sexual harassment in the financial services sector. It states that there are indications that inappropriate banter may have reduced, but misogynistic mindsets, underhand and pernicious behaviour may have taken its place. Mirroring our experience of advising on these matters, it reports that the worst cases tend to arise outside the office – at conferences, work trips and drinks events. It concludes that, even now, too often reporting inappropriate behaviour still leads to the reporter being moved role, or exited, without action being taken against the perpetrator. There is an ongoing concern that when HR investigates concerns raised under the whistleblowing process, too often the focus is on protecting the firm, rather than correcting the work environment and safeguarding employees.
Recommendations include employers being clear they will operate a zero-tolerance culture, ensuring that even where in the past inappropriate jokes and comments might have been tolerated, that is no longer the case. And that all allegations will be carefully investigated and followed through on.
The FCA/PRA have been clear that acts of non-financial misconduct are very relevant to the assessment of fitness and propriety, and therefore also for regulatory references. There is commentary in the Sexism in the City report that for staff who do not require to pass the fit and proper hurdle, the proposals could risk watering down the approach that many firms have already been taking. Many firms have for some time been categorising any sexual harassment or bullying as a breach of Conduct Rule 1: the duty to act with integrity. The proposed changes to the FCA Handbook, however, include a requirement for the non-financial misconduct to amount to a serious breach of that duty, or for it to be a serious instance of bullying and harassment. Adding in a prescribed level of subjectivity may produce less certainty and do less to change behaviours.
Settlement agreements or Acas-conciliated COT3s are used to settle legal claims, whether live or threatened. Routinely, these agreements contain confidentiality wording, referred to as non-disclosure agreements (NDAs). Where firms are paying out money to resolve a dispute, they seek the certainty of closure. The Sexism in the City report recommends a ban on NDAs in harassment cases and recommends that the FCA collects data on the frequency of their use for non-financial misconduct.
This is clearly also an area of interest to the FCA from its survey questions. Firms should take steps now to ensure they are in a position to identify which settlement agreements, or COT3s, contain confidentiality wording. Often these agreements are not filed with reference to the circumstances in which they arose. Where an employee is settling claims unrelated to harassment, it has become increasingly standard for the lawyer acting for the employee to introduce fresh discrimination or harassment allegations into the mix, as part of negotiations, with a view to encouraging a more generous offer. Firms should be considering, at the time of finalising the agreement, whether or not to record it as settling claims of non-financial misconduct. This is one of many issues wholesale banks and insurers have been handling in response to the survey. As is also clear from the FCA survey, firms will want to be mindful of ensuring any confidentiality wording does not conflict with regulatory or other obligations.
Finally, the Sexism in the City report also recommended that the Equality and Human Rights Commission and the FCA clarify how they will work together on the duty to prevent sexual harassment that takes effect in October 2024. Where firms do not already have in place policies on identifying and investigating sexual harassment, or do not already provide training to all staff on the topic, they are running out of time to get their house in order.
We are having regular discussions with clients on the challenges of handling information on non-financial misconduct and are keen to draw clients together in conversation. If that would be of interest to you, please let us know.
