Out-Law News | 25 May 2018 | 5:37 pm | 2 min. read
Firms would be expected to take the behaviour of individuals into account as part of the 'fit and proper' assessment required under the new rules, Megan Butler, who is the FCA's director of investment, wholesale and specialist supervision, told the House of Commons' women and equalities committee.
Butler said that the 'fit and proper' assessment should "encompass the whole of [an] individual", not just their financial decision-making.
"From our perspective misconduct is misconduct, whether it is financial or non-financial," she said.
"We do not believe that a culture that tolerates sexual harassment and other forms of behavioural misconduct is a culture that will encourage a 'safe to speak up' environment, an environment where the best business decisions get taken, the best risk decisions get taken. We do not compartmentalise that away from a consideration of what makes an individual fit and proper, and we expect firms to take all those aspects into account when they look at whether their key individuals are fit and proper to do their roles," she said.
The FCA has received nine complaints to its whistleblowing hotline involving allegations of sexual harassment at regulated firms in the last couple of years, out of a total of around 1,500 complaints, Butler said.
The SMCR was introduced for deposit-taking banks and building societies on 7 March 2016. It will be extended to insurers on 10 December 2018, and to other regulated firms in 2019. The senior managers' regime requires firms to assign responsibility for certain areas of the business to named senior individuals, while the certification regime requires them to annually assess the fitness and propriety of staff in certain roles. The regime also incorporates additional conduct rules, applicable to all staff.
"Employers need to focus on improving their internal culture and practice so that victims of sexual harassment feel confident raising concerns and know that there are supportive procedures in place to resolve the matter," said financial services employment law expert Ben Brown of Pinsent Masons, the law firm behind Out-Law.com.
"The potential consequences of enforcement action by the FCA can be severe, as demonstrated by recent fines levied on senior managers by the FCA. Even without FCA involvement, managers run the risk of criminal charges being brought against them and potential personal liability arising from discrimination or harassment claims brought in the employment tribunal," he said.
Brown explained that employers would usually be 'vicariously liable' for harassment carried out by their employees.
"Employers can use a statutory defence in order to avoid liability for the unlawful actions of their employees in the workplace, but in order to do so successfully they need to show that they took all reasonable steps to prevent them from acting unlawfully in the first place," he said.
"This defence won't be open to employers unless they have robust equality and diversity policies, regular and substantive diversity and inclusion training and can show that disciplinary action is taken against employees acting in breach of the conduct rules," he said.
The FCA has pressed the need for cultural change at financial firms in a number of consultations, thematic reviews and discussion papers since its inception in 2014. In March, it published a discussion paper focused on transforming financial services culture, including the roles that individuals, firms and regulators should be playing in bringing about change.