‘Sexism in the City’: the latest FCA spotlight on non-financial misconduct

Overview

As part of the Treasury Select Committee’s ongoing “Sexism in the City” inquiry, the UK Financial Conduct Authority (FCA) has underlined its further intention to take more action against non-financial misconduct last month, setting the tone for the year ahead.

Sarah Pritchard, Markets and Executive Director, International at the FCA announced that the FCA intends to collect data on sexual misconduct cases at major banks and insurers to give the FCA a better understanding of non-financial misconduct in the industry, as well as insight into the use of Non-disclosure agreements (NDAs) in misconduct cases.

In 2023, the FCA published a consultation paper which aims to promote diversity and inclusion across the sector and includes new rules and guidance on how firms should tackle bullying and sexual harassment in the work place (CP23/20 and our briefing here). The consultation paper states: “In our view, there is a risk to public confidence where individuals have committed serious non-financial misconduct, whether inside or outside the workplace, such as sexual or racially motivated offences, but are permitted to continue working within the sector. … Our proposed changes also clarify that conduct that could damage such public confidence is likely to mean that the person is not fit and proper”.

In the inquiry, Pritchard stated: “The industry is very much asking us to lean in for some regulatory intervention in this space and in the two areas that you see set out in the consultation”. Echoing much of the FCA’s recent rhetoric, Pritchard’s comments state a drive for consistency in data and information. This is hoped to enable greater comparative analysis across the industry and underpin more targeted supervisory action, such as how non-financial misconduct impacts individuals’ fit and proper assessments, before considering more stringent measures, including enforcement action.

The FCA confirmed the importance of whistleblowing during the hearing, stating it looks at regulated firms and asks “is there confidence in that whistleblowing system” and highlighted its recent pilot to give greater information to whistleblowers and explain what the FCA do with information provided. Reports of non-financial misconduct are steadily increasing. The FCA intends to launch a survey of wholesale banks and wholesale insurers, to look at the numbers and statistics of both, including non-financial misconduct cases in the part of financial services, methods of detection and, crucially methods of resolution.

 

Enforcement on non-financial misconduct

This issue has been in focus after several recent high-profile cases of sexual misconduct.

1. Since 2023, the FCA has been investigating a hedge fund manager over his “fitness” to work in financial services. He was ejected from his company he founded after an investigation by the Financial Times revealed multiple claims of sexual harassment and assault against him. The FCA recently indicated it has decided to not take action against the firm, after closing down following the allegations but is still investigating the individual.
   
   
2. In a previous case concerning an FCA-approved financial adviser, who was convicted of various sexual offences and imprisoned, the FCA consequently withdrew his regulatory approval and prohibited him from performing any regulated function – concluding that he was not a fit and proper person.
   
   
3. Further, according to the FCA, the number of whistleblower reports received from UK asset management firms increased significantly in 2023, particularly in relation to sexual harassment and culture. They received 172 whistleblowing complaints between January and October, with eight complaints of sexual harassment and 20 complaints relating to culture.

 

The use of NDA’s in non-financial misconduct cases

The FCA is also particularly interested to find out how those cases are being resolved within firms, with a special focus on NDAs.

Pritchard confirmed in the inquiry that data and information is being collected on the use of NDAs used by firms in relation to bullying, harassment and sexual misconduct as one of the methods of dealing with these incidents. According to her, signing an NDA is not a preclusion to reporting to the FCA as a whistleblower, but the FCA also recognises there are occasions when such agreements are required to maintain the confidentiality of commercial terms.

 

What does this mean for firms and what can they do to avoid risks

The FCA plans to use the data to take stock and share best practice, but also to inform its supervisory programme when the new non-financial misconduct rules come into force.

Firms should be taking steps now to ensure they are prepared for the upcoming changes and can look in the mirror to challenge themselves on how robust their diversity and inclusion policies, governance, oversight and data collection processes currently in place are. It is vital that regulated firms have transparent mechanisms in place to detect, resolve and report non-financial misconduct.

This will allow firms to demonstrate that they are working to ensure compliance, while maintaining the delicate balance between confidentiality and fair treatment of employees, and the requirement for regulatory transparency.

*This article was co-written by trainee solicitor Katina Dorer.