The Financial Conduct Authority and Prudential Regulation Authority have published a consultation paper proposing tougher rules around misconduct and governance.
The regulators argue that the proposals will “boost diversity and inclusion to support healthy work cultures, reduce groupthink and unlock talent”.
They propose a set of new rules and guidance around misconduct and what constitutes bullying or sexual harassment in the workplace. This follows a series of allegations against employers in the sector such as hedge fund Odey Asset Management, where manager Crispin Odey was ousted over claims of sexual harassment and assault.
The new rules would toughen up the “fit and proper persons” test so that employees of regulated companies could be struck off if they failed to meet the criteria.
Finance sector news
The regulators hope that greater diversity and inclusion in the City will contribute to better internal governance, decision making and risk management.
The FCA pointed towards recent figures from the Women in Finance Charter showing that female representation in senior management among signatories averaged 35%.
Its own research shows that people from a minority ethnic background are much less likely to have private pension provision, increasing the need for greater representation in the industry.
Under the proposals, regulated companies would have to develop a diversity and inclusion strategy setting out how they will meet their goals in this area; collect, report and disclose data against certain characteristics; and set targets to address under-representation.
FCA chief executive Nikhil Rathi said: “For UK financial services to be competitive and for the companies in it to be well run with healthy work environments, it is vital they attract, retain and promote the best talent. The data suggests this isn’t happening.
“’UK financial services has long been a magnet for best-in-class talent globally. Increasing levels of diversity within firms can help attract and unlock talent, supporting the sector’s international competitiveness.”
He said the FCA had “taken a lead among regulators” in its tough stance on non-financial misconduct such as sexual harassment and bullying.
“We’re strengthening our expectations on how the firms we regulate consider such misconduct when deciding whether someone is fit and proper to work within the industry,” he added.
The paper proposes making it clearer what constitutes sexual or racially motivated offences at work, and why these impact someone’s fitness and propriety for their role.
“One of the purposes of FIT [the fitness and propriety test] is to maintain confidence in the financial system in the UK. 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,” it says.
Claire Cross, partner at law firm Corker Binning and a former lawyer with the FCA’s enforcement division, said the consultation was long overdue.
“Despite repeated rhetoric from the FCA that harassment and bullying in the workplace can amount to a breach of the conduct rules, there has been surprisingly little guidance from the financial watchdog on how this would work in practice. The new consultation process is therefore a positive, and long-awaited, step forward,” she said.
“The FCA’s published regulatory outcomes in respect of non-financial misconduct have so far focused on those convicted by the criminal courts of serious offences. This provides little help to firms who are having to deal with less clear-cut allegations relating to bullying or sexual harassment in the workplace.
“The FCA and PRA’s consultation documents, which will ultimately feed into formal guidance, follows a trail blazed by the SRA, which last year published its own guidance about sexual misconduct allegations, both inside and outside of the workplace, and its expectations of firms and individuals.”
The consultation is open until 18 December 2023, and the feedback will be used to develop final rules next year, the regulator said.
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
HR opportunities in Accountancy, Banking, Finance and Insurance on Personnel Today
Browse more HR opportunities in Accountancy, Banking, Finance and Insurance
