UK's FS firms prepare managers for new FCA responsibilities

The FCA’s new rules on non-financial misconduct have been in force since 1 September, extending the conduct rules in non-bank financial services firms to serious bullying, harassment, and violence towards colleagues. For firms, the focus has now moved from preparing for the changes to making sure they work in practice.

An area attracting particular attention is the role of managers. Under the new regime, the regulatory risk does not necessarily stop with the person accused of misconduct. Managers may also come under scrutiny over what they knew about inappropriate behaviour and whether they responded appropriately. So what does that mean for managers and what should firms be doing to make sure they understand their responsibilities? We’ll hear from financial services and discrimination expert Anne Sammon about that.

The issue has already been picked up in the financial services press. FT Adviser has highlighted the position of managers under the new rules and, importantly, the potential significance for people with management responsibilities at different levels of an organisation.

That matters because this is not simply an issue for senior management, HR, or compliance. The FCA’s guidance says managers should take reasonable steps to prevent serious misconduct and, where appropriate, intervene if they know or should reasonably have known that it was happening. What is expected from managers will depend on the circumstances, including the manager’s authority and their ability to act.

The guidance also makes an important point about where responsibility sits. A firm may give responsibility for the fair treatment of staff to a particular senior manager or central function, such as HR, but that does not absolve other managers of their own regulatory responsibilities.

For firms, that puts the focus on policies, processes, and training. Managers need to understand what is expected of them, know when concerns should be escalated and recognise that failing to respond appropriately could potentially have regulatory consequences for them as well as the individual accused of misconduct.

The FCA is telling firms to make sure both staff and managers understand how the changes apply to them. So, with the new regime now in force, what should managers understand about their own potential exposure if they know about inappropriate behaviour but fail to act on it? I put that question to Anne Sammon: 

Anne Sammon: “The stakes are really high because if you make a finding that somebody is guilty of non-financial misconduct, or financial misconduct, that is going to have to be included on a regulatory reference, assuming that has also been accompanying disciplinary action, and therefore for a period of six years, that employee is going to have that information included on that regulatory reference. Now, for more serious misconduct, if we're talking about fraud or very serious non-financial misconduct, that period is unlimited. So this is very significant for individuals, and it means that HR teams are going to feel a bit reluctant to make those big decisions. The flip side of that is that, from a compliance perspective, we can't get away from the fact that if somebody has behaved inappropriately, it has to be recorded as that inappropriate behaviour and it has to be reported to the regulator and if you don't have the right systems and controls in place to ensure that that happens, you've got a regulatory breach, which is equally not a good position to be in. So I think the really key piece is for HR and compliance functions to work on this together and to work through cases as and when they arise, taking advice where necessary, to make sure that they are on the right side both of employment law but also the regulatory position.”

Joe Glavina: “What work are you currently doing for your clients in this area, Anne?

Anne Sammon: “So, there are couple of different streams of work. One is looking at the policies to make sure that they fit with the new non-financial misconduct rules, that they're as clear as they can be when it comes to regulatory consequences so that employees are aware of what happens if they breach any of these rules around discrimination, harassment, bullying. The second stream is a kind of internal education piece. So going into clients, talking to their boards, talking to their senior managers, so that they understand the implications for this because one of the things that is likely to happen is an increase in litigation. That also means that HR teams may need more resource, they may need more support, they may need more people from the business, for example, to step up and be disciplinary managers or grievance decision makers. So at the moment it's those two work streams, alongside all the work that we do with clients where they are investigating those issues because, obviously, this comes into force from 1 September for non-banking firms, but for banking firms they've had this in for some time, so we've already got experience of what this looks like and the longer term implications.”

So, the key point is that the new rules put greater responsibility on managers to recognise and respond appropriately to serious misconduct. Firms need to make sure managers understand what is expected of them and the potential regulatory consequences if they fail to act. 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.