Funds

In the post Weinstein era, barely a day goes by without a headline about sexual harassment in the work place. Hot off the heels of the #MeToo movement, the Financial Conduct Authority (“FCA”) has recently published a letter from Megan Butler, the Executive Director of Supervision, to the Chair of the House of Commons Women and Equalities Committee, which addresses sexual misconduct and makes it clear that that the FCA’s top down approach to transforming the culture and conduct of the financial services industry can and does extend beyond the more traditional confines of a firm’s compliance function.

The letter indicates that the FCA takes a very dim view of firms’ mishandling of allegations of sexual harassment, indicating that the FCA views such misconduct (and the improper handling of the same) as a regulatory issue.

It is apparent that the FCA intends to deploy the Senior Managers and Certification Regime (“SM&CR”), a key element of the FCA’s supervisory framework, to hold firms accountable for failing to properly deal with allegations of sexual harassment going forward.

The SM&CR is the mechanism for assessing and approving the most senior managers that perform key roles within many institutions (“Senior Managers”) and currently applies to all banks and building societies. This regime will be extended to all firms authorised by the FCA under the Financial Services and Markets Act 2000 from December 2019 and therefore from that time it will apply to regulated asset managers and advisors. Under the SM&CR, enquiries require to be made to the competency, honesty, integrity and reputation of Senior Managers, with the overall aim of ensuring that an individual is ‘fit and proper’ to perform their role. Part of the assessment involves consideration of any sanctions for sexual harassment and the FCA has warned that there have been instances where either they, or a supervised firm, have found an individual not to be fit and proper on the basis of their ‘non-financial’ conduct.

The FCA has reminded firms that they should be:

  • Promptly disclosing any potentially serious misconduct involving their employees to the FCA (and within seven days should the incident involve the most senior employees within the business).
  • Implementing effective whistleblowing training for Senior Managers and other employees engaged within a firm’s whistleblowing process to ensure that internal protected disclosures can be made and that sufficient measures are in place to prevent the victimisation of whistle blowers.
  • Aware that non-disclosure agreements do not prohibit individuals from ‘blowing the whistle’ by making disclosures to the FCA.

It is clear that the FCA is committed to rooting out failures of corporate culture within regulated businesses. In its view poor cultures have lain at the heart of a string of scandals that have tainted the reputation of the financial services industry in recent years. The takeaway for firms is that they may not take a narrow view and should look beyond an individual’s financial and professional conduct when recruiting Senior Managers, giving due consideration to a candidate’s wider personal behaviours and attitude. Senior Managers themselves should take appropriate steps to ensure that robust processes, policies and procedures are in place to ensure all allegations of personal misconduct, including sexual harassment are properly investigated, reported and dealt with appropriately.

Sarah Donnelly

Solicitor at Brodies LLP
Sarah joined Brodies’ Corporate team in September 2018 and advises on a broad range of matters including business acquisitions and sales, corporate restructurings and general company law issues.
Sarah Donnelly