Non-financial misconduct in UK financial services: the disputes perspective
Published on 27th Aug 2024
Following a D&I consultation and parliamentary enquiry on sexism in the City, where are we now and where we are going?
Financial regulators have been flagging issues around non-financial misconduct (NFM) together with diversity and inclusion (D&I) for some time.
Between 2020 and 2022, the UK Financial Conduct Authority (FCA) issued a range of decisions against individuals on the grounds of NFM (although these have not necessarily found favour with the Upper Tribunal when referred). These cases have been followed by recent and high-profile allegations of misconduct both within the financial services sector and more widely.
More recently, the launch of the parliamentary enquiry into sexism and misogyny in the City brought the FCA and the Prudential Regulation Authority (PRA) to give evidence, which they did in February this year. The FCA wrote to all regulated London insurance firms in June, seeking to understand their frameworks for identifying and reporting instances of NFM. It has been reported that around 1,000 firms across the sector will receive similar requests in due course.
Where are we going?
The direction of travel has been clear for some time. The FCA and PRA ran a D&I consultation from September to December last year. The regulators' proposals aimed to improve D&I in the financial sector.
Notwithstanding the likely delay caused by the recent change in government, a policy statement following the consultation is still expected this year. Implementation is expected within 12 months of the statement.
Regulators see NFM and D&I as important and inextricably linked and that a lack of D&I at firms can be an indicator of or give rise to other regulatory and cultural issues including a higher number of cases related to NFM. This was made clear in the FCA's evidence to the parliamentary enquiry, in which the FCA continued to suggest that it would act to ensure that issues of NFM fall within its remit.
Osborne Clarke comment
Where this will end up and whether the D&I proposals will be scaled back is yet to be seen. However, it does seem that firms are likely to need to implement processes to record and publish at least some data, on request.
In the absence of formal rules and guidance in relation to NFM, it is currently left to the judgement of an individual firm when to take action and the nature of what is appropriate action. We are already seeing clients making these assessments by reference to the spirit of the proposals in the consultation, including consideration of whether any conduct meets the test for being sufficiently serious.
This does not take away from the fact that this will be a difficult line to tread. Any approach may raise several related issues including those of employment law, litigation risk, the need to involve HR teams in disciplinary matters, data and communications monitoring, and reputational issues.
It is fundamentally important that firms do not make decisions in a vacuum and that decision-making processes involve advice from all relevant teams while being mindful of regulatory duties.
If you require support in understanding the regulators' expectations in this area, the consultation proposals or in respect of dealing with issues of NFM and communications with regulators, please contact one of our experts.
