Last week's report by the House of Commons Women and Equalities Committee into sexual harassment in the workplace looked closely at the role of regulators in addressing unacceptable behaviour in their respective sectors.  

All regulators are subject to a Public Sector Equality Duty under the Equality Act 2010, which obliges them to have regard to the need to eliminate discrimination and harassment, and to advance equality of opportunity.  The Committee's report is critical of regulators' perceived inaction - the report is a call to arms, making two recommendations that affect financial services.  The first is that all regulators should publicise an action plan setting out steps to ensure employers protect their staff from sexual harassment.  The second is more challenging - the Committee suggests that inadequately addressing sexual harassment at work should lead to the failing of the fit and proper test for regulated individuals.

That test requires firms to look at (1) honesty, integrity and reputation; (2) competence and capability; and (3) financial soundness.  The FCA's guidance already deals with the possibility that regulated individuals might have committed criminal offences or faced internal disciplinary proceedings, but gives firms a wide margin of appreciation - essentially, each case must be assessed on its own facts.  

The wide range of possible offences in this area, and the wide range of legitimate employer responses, mean that changing the existing fact-sensitive test set out in the FCA Handbook is likely to be fraught with complexity.

The Committee's recommendation that perpetrating an act of sexual harassment should automatically lead to failing the fit and proper test appears uncontroversial at first sight, until one remembers that sexual harassment encompasses a wide variety of behaviours, from sharing an offensive joke on email to serious sexual assault.  An automatic blanket response may not adequately reflect the varying degrees of seriousness encountered in practice.

The recommendation that failing to address sexual harassment should also lead to an automatic fail raises more questions than it answers.  How is 'failing to address sexual harassment' to be assessed?  Which managers in a firm's hierarchy will 'fail' if an allegation of harassment is ineffectively investigated?  Is the commercial settlement of harassment litigation a 'failure'? 

Firms should expect greater proactivity from the FCA, and ensure their conduct and disciplinary processes deal adequately with sexual harassment allegations in particular.