Legal development

Thought for the Week: Non-financial misconduct is misconduct - but is it plain and simple?

Thought for the Week

    In recent years, the FCA has made it clear that non-financial misconduct, including sexual harassment, bullying and discrimination, is misconduct "plain and simple". Last week, in a consultation paper released in tandem with that of the PRA, it has finally issued the proposed rule amendments and guidance to FIT and the Conduct Rules (COCON), which it hopes will solidify these strong words into action (see our briefing with a summary of proposed changes). 

    COCON is to be expanded to include behaviours such as bullying and sexual harassment, although these will not bite in relation to behaviour in personal or private life. The proposed new guidance should assist firms when assessing whether an individual has breached Conduct Rules in the twilight area between work and personal life, enabling them in some cases to push back on supervisors who may be keen for them to treat poor behaviour in an individual's personal life as a Conduct Rule issue.

    However, there are aspects to the proposed amendments to FIT and COCON that we feel are certainly not "plain and simple" and will require further work from the regulators.  In particular:

    • Whilst some clarification has been provided on when COCON might apply in relation to the divide between work and personal life, there are still some real grey areas. The regulator distinguishes between, say, in-scope misconduct involving a colleague at a social occasion organised by the firm, as against misconduct involving a colleague at a gathering organised by staff in their personal capacity, which is not. This means that certain events, such as leaving or celebratory drinks set up by employees, could well be ambiguous.
    • Although misconduct which occurs to a staff member when remote working would be in scope, no detail has been provided around off-channel communications, messaging, or social media. Given harassment and bullying can so often occur in message chains using personal devices, there are grounds here for uncertainty.
    • The FCA's examples of misconduct falling foul of the Conduct Rules are provided in guidance rather than evidential rules. As guidance is not itself binding and does not have any formal evidential weight in interpreting a binding regulatory rule (such as the Conduct Rules themselves), it calls into question why the examples of misconduct in COCON are not proposed as evidential rules which could therefore be utilised as they are intended by firms and the regulator.
    • Given that non-financial misconduct has already been the basis for past successful prohibition actions by the regulator, the addition of specific rules and guidance in FIT feels less radical than the changes to the Conduct Rules. The explicit expansion of the rules to personal and private life, without any need to link conduct with financial activities, will make it much easier for firms to establish fitness and propriety failings. However, this could be uncomfortable: are firms expected to consider whether behaviour such as extra-marital affairs, speeding tickets, and drunken behaviour, are relevant when assessing the fitness and properness of their staff.

    What firms should do

    Firms should start considering now where their risks might lie. In many respects the new provisions will give them greater clarity on how to treat misbehaviour by their staff, whether inside or outside the office.  The FCA is clearly stepping up a gear on non-financial misconduct and firms will need to be ready with a forward-looking strategy to ensure that rigorous fitness and propriety assessments are conducted, the conduct of staff is monitored carefully and that there are robust systems in place to ensure that staff grievances can be heard and investigated appropriately.

    AuthorsNathan Willmott, Adam Jamieson, Eleanor Robinson

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest