Non-bank FS firms navigate new FCA misconduct rules

New FCA rules on non-financial misconduct have come into force, extending the scope of the conduct rules in non-bank financial services firms to cover serious bullying, harassment, and violence towards colleagues. The changes took effect on Tuesday, 1 September, and mean behaviour traditionally dealt with as an HR issue can now also become a regulatory one. But not every case of workplace misconduct will cross that line and, for HR professionals, knowing when it does will be critical. So where is that line exactly, and what should firms be doing differently now the new rules are in force? We’ll ask discrimination expert Anne Sammon that question.

At the heart of the new rules is the FCA’s approach to harassment and bullying. It draws on concepts familiar from the Equality Act but, crucially, there is no need for the conduct to be linked to a protected characteristic. That means behaviour could potentially amount to harassment within the FCA’s harassment rules even where there is no corresponding Equality Act harassment claim. For HR, that has an immediate practical consequence. Firms whose harassment policies are based narrowly on the Equality Act definition may need to revisit them to make sure they reflect the wider FCA approach.

There is also the question of where the workplace ends. Conduct does not have to happen in the office or during working hours to be work-related. A Christmas party is an obvious example, but after-parties and informal socialising between colleagues can present much greyer areas. And even genuinely private conduct is not necessarily irrelevant. It may still have implications for fitness and propriety where, for example, it indicates a material risk that the individual could breach regulatory standards in their professional role.

The important point is that the arrival of the new rules does not turn every workplace conduct issue into a regulatory one. In most cases firms will still need to establish the facts through their normal HR processes before deciding whether there is also a conduct rules breach, a fitness and propriety concern or something that needs to be reported to the FCA.

So, with the new rules now in force, where is the dividing line between an ordinary workplace conduct issue and non-financial misconduct that becomes a regulatory matter? I put that to discrimination expert Anne Sammon:

Anne Sammon: “I think that's a really difficult question, partly because the regulator has avoided giving us a proper definition of what they consider to be non-financial misconduct beyond the very obvious anything that is isn't financial misconduct is non-financial misconduct, but the new rules that come into effect from 1 September are really focused on harassment and bullying rather than other types of non-financial misconduct. So it's harassment and bullying that I would be particularly focused on if I was in HR in an FS firm at the moment.”

Joe Glavina: “Is there a risk of firms becoming over-cautious and treating relatively minor workplace misconduct as a regulatory issue simply because the new rules have arrived?”

Anne Sammon: “I think it depends on the nature of the issue as to whether or not it's a regulatory concern. What we would usually recommend is that you do your usual HR process. So you go through an investigation, you look at the disciplinary, and only once you've got to the end of that disciplinary process do you then really think about whether it's a regulatory issue, unless it's super serious. If it's super serious at the very outset, you're probably going to want to be taking some legal advice about whether that's reportable at that point to the regulator, but super serious in terms of non-financial misconduct would usually be those things that also have a bit of a criminal element. So if we were talking about very serious sexual harassment allegations, that might be something where you might want to think about taking advice about whether or not you've got a very early obligation to report. But barring that, ordinarily you'd go through your disciplinary process, and only then do you start to look at whether or not you've got a conduct breach or a fitness and propriety concern and it's only once you've gone through those points that you then decide whether you have to then report all of those things to the regulator.”

Joe Glavina: “The FCA has borrowed from the Equality Act definition of harassment but importantly does not require a link to a protected characteristic. How significant is that difference in practice?”

Anne Sammon: “It's going to be very significant because some of the policies that I've seen for financial services firms, their definitions of harassment, have been taken from the Equality Act with the reference to those protected characteristics. So, if you are an FS firm I would be reviewing my anti-harassment policies, or equivalent, to make sure that we haven't just linked harassment as a protected characteristic issue and that it's wider than that. If you've already got a policy that's wider than that you're probably okay, but it's worth having a having a general review to make sure that it is compliant with the new rules that are coming in, but overall, it means that we may end up with cases that are taken to disciplinary, where there are disciplinary sanctions, but there's no actual actionable claim that the person who's been subject to that behaviour can necessarily bring beyond something like constructive dismissal.”

Joe Glavina: “How should firms decide whether conduct outside the office is work-related and, if it is genuinely private, when can it still become relevant to the FCA?”

Anne Sammon: “So I think we're back to some of the kind of almost employment law tests that we've seen over the years around vicarious liability. So the first question is, does it have a connection to work? So you're looking at the Christmas party, that's definitely work related. If it's an after party following the Christmas party, if there's lots of people from the organisation who are there, then that that is likely to still be work related. So you're looking at how remote is it from the workplace, and that also involves looking at who was in attendance. So even if you have a dinner party at your house and it's all your work colleagues and nobody else, that could start to look like it's a work event that it's been done to kind of encourage team bonding, team collaboration, and those are some of the more difficult and grey areas particularly because employees quite often will think, well, I'm friends with my colleagues and therefore I want to see them outside of work, and it's got nothing to do with the workplace. So I think first of all, it's how closely connected is it to work, which is not always a straightforward question, and then in terms of when something that is purely in someone's private life becomes relevant, part of that question depends on the level of seniority of the individual. So, if we're looking at anyone who is certified, or is a senior manager, anything that they do in their private life could potentially become relevant because it goes to that issue of fitness and propriety, and lots of people will remember in relation to financial misconduct the case many years ago of the BlackRock trader who evaded fares on the railway and was banned from working in financial services. One of the arguments put forward at that point was, well, this was purely in his private life, it was his journey into work, and the FCA said we don't put any store by that and, actually, how you behave outside of work can be a reflection of how you will behave at work.”

So, the key point is that the new rules don’t turn every workplace conduct issue into a regulatory one. Firms need to understand where the dividing lines sit and make sure their policies and processes reflect the new regime. Anne is currently working with a number of financial services clients helping them navigate these issues. If you would like help with this, please do contact Anne – her details are there on the screen for you.