The FCA published a letter on 16 October from its Executive Director of Supervision, Megan Butler, addressed to Maria Miller MP who chairs the House of Commons’ Women and Equalities Committee. The letter detailed how the FCA views non-financial misconduct, in particular sexual harassment, as coming under its regulatory ambit predominantly in connection with how it assesses a firm’s culture and the Senior Managers and Certification Regime (“SMCR”).
The letter stated that the FCA believes that culture is a key cause of major conduct failings and as a consequence the FCA expects firms to create a healthy culture. The FCA would see a culture where sexual harassment is tolerated as being indicative of an overall culture which does not allow for decisions to be challenged and consequently would fall below the standard the FCA expects. The letter emphasised how the FCA takes a holistic approach to evaluating a firm’s culture, considering the extent to which it is shaped by factors such as remuneration, inclusion and diversity. Given this approach it is vital that firms review their culture holistically to ensure that the firm is not only upholding the FCA’s standards in relation to financial conduct, but also personal conduct.
The extension of SMCR to all FCA authorised firms by December 2019 means that all senior managers of FCA regulated firms require FCA approval. To be approved it will be necessary for the FCA to determine that the person is fit and proper and this will be assessed on the basis of their competence, honesty, reputation and integrity. The FCA indicates in the letter that it will consider any sexual misconduct, or other non-financial misconduct, when evaluating an individual’s fitness and propriety. The FCA also suggests that this should extend to when firms self-assess whether certified staff are fit and proper and to the "approved person" regime to those firms which it still applies. It is therefore important that firms when making determinations with regards to senior managers, certification or approved persons that they examine beyond the individual’s financial conduct and consider their wider behaviour and whether it is compliant with the FCA’s standards.
The FCA also makes clear that firms are expected to inform the FCA promptly of any potentially serious misconduct involving their employees and that firms should be able to demonstrate that they have the right processes to handle such cases. If the misconduct involves the most senior staff at the firm the FCA would expect notification within seven days. The FCA also states that it is important for firms to have robust processes in place to deal with any cases of serious misconduct and sufficient whistle-blowing and complaints procedures in place.
In a letter to the Women and Equalities Committee on the 28 September, Megan Butler, executive director of investment, wholesale and specialist supervision at the FCA, reiterated the body's view that sexual harassment falls within their regulatory scope.