As you may have seen in the news, Lloyd’s of London has issued the largest fine in its history, over a million pounds. The action was taken against underwriting group Atrium for behaviour that included ‘systematic bullying’ and the sexual harassment of female staff on an annual ‘boys’ night out’. It's a case we reported a fortnight ago and we are returning to it because there’s an important regulatory angle to this story which has gone almost unnoticed concerning SMCR – more on that in a moment.
This case was widely covered by the media, including the BBC and the national press. The FT reports the conclusions of Lloyd’s enforcement board. They said there were ‘serious failures’ by senior managers within Atrium over a number of years, and a culture that it said, ‘tolerated instances of unacceptable conduct involving discrimination, harassment and bullying’. One employee’s misconduct was apparently well known within Atrium but the company had failed to protect the junior employee once it became aware of the matter even though its own investigation made findings of serious misconduct. Instead, Atrium settled with the employee and allowed him to resign. Lloyds said that decision was motivated in part by the desire of a senior manager to protect Atrium from bad publicity as well as the desire to limit the impact on the business unit involved.
So what is the SMCR angle to this story? Chris Evans works with a number of clients in the FS sector and was keen to flag the point when he spoke to me by phone earlier:
Chris Evans: “From my perspective, the decision for Atrium was interesting not only in terms of how Lloyd’s approached this, but also what the knock-on consequences could be from an SMCR angle. So, many people have seen from news articles in the BBC and the FT, that the culture of the firm was picked up, and they effectively found that there were instances of unacceptable conduct involving discrimination, harassment and bullying and the decision from Lloyd’s goes a little bit further in terms of how a settlement agreement was entered into in relation to a specific individua and that course of treatment was described in the decision, proposed by an Atrium senior manager, and the decision also goes on to talk about how bullying behaviour wasn't challenged, and how there were instructions from Atrium to not speak about outcomes of investigations, etcetera, and, effectively, senior managers being aware of this sort of culture and conduct within the business. It has been well publicised, obviously, that a significant fine was issued to the tune of around a million pounds and then costs on top of round half million, but what hasn't been addressed is the potential SMCR implications and what I mean by that is how the culture of a firm can potentially impact an individual's ‘fitness and propriety’. So certified staff and senior managers need to be certified as being ‘fit and proper’ to do their roles and back, I believe, in 2018 Meghan Butler from the FCA wrote a letter to the Women and Equalities Committee basically saying that there have been instances where they have found an individual not to be ‘fit and proper’ on the basis of what they called non-financial misconduct. Now, that has also been taken further in a letter that the FCA wrote to insurers in January 2020 where they also found that a senior manager’s failure to take reasonable steps to address non-financial misconduct could lead them to determine that they are also not ‘fit and proper’. So, taking a step back then, obviously the decision from Lloyd's was interesting and relevant from the fine that was levied and the findings of fact that they made, but it also struck me that actually there are wider SMCR implications here. So, should the FCA be looking at, and should the firm be considering, what implications this has upon the fitness and propriety not only of the individuals involved in these instances of poor behaviour, but also in terms of any senior management as to them condoning that behaviour. On top of that, you've also got to think about conduct rule breaches. So, whilst conduct rule breaches, in theory, should only be relevant to the role that they're carrying out for the firm, if, for example, these behaviours took place at a work event or on work premises then there may be an argument that if there had been disciplinary proceedings, and a disciplinary sanction applied, that there could also be a conduct or breach. So for example, a lack of integrity on someone's part, or acting without due care and skill, and I think in those circumstances it's really important to recognise that for regulated employers, who are also members of Lloyds, that it's not only the Lloyd’s angle they need to consider but also the SMCR angle as well. So, should they be entering into a settlement agreement? That was obviously one of the criticisms that Lloyd’s levied against Atrium and in that circumstance, you know, is a settlement agreement the right thing to do to get rid of the bad behaviour and avoid negative publicity or, actually, what Lloyd’s seem to be suggesting and actually there may be an argument from SMCR angle as well, is that you should be addressing that poor behaviour head -on so that the senior manager in charge of that function is not effectively promoting bad behaviour by trying to get rid of the problem and sweeping it under the carpet.”
Joe Glavina: “When it comes to SMCR as you know it’s a very broad concept covering a wide range of legal and regulatory compliance issues. So what’s the message to HR specifically, Chris?”
Chris Evans: “Yes, so SMCR sometimes, unfortunately, falls between the gaps between HR, compliance, and also the individuals that are subject to the regime. What I would be saying to HR is, in the sorts of circumstances, it should be sending up a red flag. So, if you are asked to look at a settlement agreement or to exit someone in circumstances of non-financial misconduct there almost needs to be a pause pressed on the process to think is this the right thing to do, not only from a firm reputational point of view, being seen to do the right thing kind of perspective, but also in terms of the individuals involved, be that the senior manager signing off the settlement agreement, anyone else involved in the misconduct, or the person subject to the misconduct. Is this the right thing to do from a regulatory perspective? It’s very easy to ‘settle out’, if I can put it that way, the employment concerns and the potential claims that arise from that and as employment lawyers we can quantify what those claims are worth, be that, you know, the statutory cap in an unfair dismissal, for example, but, actually, the real cost to the business is, one, reputational, which Atrium were very keen to try and avoid, but by doing so they walked into a bigger problem here, or potentially bigger problem, of regulatory and also the fine from Lloyd’s. So, I think if you're an HR representative coming across this sort of situation and you're being asked to do something of this nature it may, of course, be the right thing for the business but I think in order to properly assess that, you need to step back and think what are the consequences of doing this and as is very clear from the decision from Lloyd’s there could be significant financial consequences and also we need to keep an eye on what regulatory consequences are there for both the business and also for the individuals involved.”
Aside from SMCR, the harassment angle to the Atrium case is one we covered a fortnight ago with Trish Embley explaining the importance anti-harassment training for managers to help avoid the problems that Atrium brought on themselves. That programme is ‘Lloyd’s of London fines underwriter £1m fine after 'boys' night out'. Also, just last week, we flagged the problem of HR professionals having too little specialised knowledge of SMCR – Anne Sammon talked about a tool she has helped develop to upskill HR. That is ‘SMCR training tool 'will help upskill HR'. Both those programmes are available for viewing now from the Outlaw website.