Out-Law / Your Daily Need-To-Know

FCA executive calls for firms to act to create healthy cultures

Out-Law News | 19 Nov 2019 | 12:08 pm | 2 min. read

The director of supervision for retail and authorisations at the UK’s Financial Conduct Authority (FCA) has said financial services firms are still not doing enough to combat sexual harassment, and need to work to create healthy, safe cultures within the sector.

Jonathan Davidson told a financial services event in London last week that not enough had yet changed to promote this type of culture.

“We are seeing too many situations where staff don’t feel safe. Indeed, we have seen markets in which female employees report persistent sexual harassment and non-executive directors feel that our concerns are political correctness gone mad,” he said.

Davidson said the FCA and the Bank of England’s Prudential Regulation Authority (PRA) would take action against directors expressing such views.

“As far as the FCA and the PRA are concerned such a culture is unhealthy and we consider senior managers who commit or countenance such behaviour as not fit and proper,” he said.

He said firms should embrace the “spirit of the rules” when it came to regulation, particularly in the area of diversity and discrimination. Davidson added that those firms which looked at regulation in this way “generally have healthy outcomes and a much lighter compliance cost burden”.

Davidson said the FCA was not prescribing a “one-size-fits-all culture” as diversity of culture had many benefits. However, he said: “The universal consensus is that while healthy cultures can be very different they share two common characteristics: they are purposeful and they are safe.”

Davidson said some firms still focused on profit and money and were failing to change their internal culture.

“I see a small and shrinking number of firms who don’t care about conduct, their purpose is just to make as much money as possible. They generally end up being sent to enforcement for investigation,” he said.

Financial services employment law expert Ben Brown of Pinsent Masons, the law firm behind Out-Law, said the FCA had made clear on a number of occasions that improving the culture across the financial services industry was a key priority.

“Allegations of sexual harassment in the financial services sector persist and the FCA is concerned that some firms do not share its view regarding the importance of equality and diversity,” Brown said.

“It is clear that the FCA considers the promotion of equality and diversity and the eradication of discriminatory behaviour as a fitness and propriety issue," he said. "Accordingly, if a senior manager is found to have committed an act of harassment, for example, or is responsible for a culture which tolerates such behaviour, the FCA seems prepared to conclude that such a manager is likely to lack the necessary fitness and propriety to conduct a senior management function."

"This could lead to the manager being unable to continue their career in regulated financial services, in addition to being personally liable for any alleged act of harassment or discrimination,” Brown said.

Brown said the issue would increase in importance when the Senior Managers and Certification Regime (SMCR) is extended to solo-regulated firms on 9 December. The SMCR has applied to banks since 2013, building societies and credit unions since 2016 and insurers since December last year.

The SMCR focuses on standards in the financial services sector, making senior individuals more responsible for conduct and also aims to encourage a culture of staff taking personal responsibility for their actions.

Davidson said the FCA would encourage firms to instil accountability, a culture of speaking up, and professionalism.

Last year FCA director of investment, wholesale and specialist supervision Megan Butler told the House of Commons' women and equalities committee that the regulator would use the SMCR to hold financial services firms to account for sexual harassment.

Allegations of harassment have been made against a number of financial services organisations, including earlier this year Lloyd’s of London.