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Culture, conduct and fitness and propriety: no more ‘cosy boys' clubs’

  • United Kingdom
  • Employment law
  • Financial institutions - Senior Managers and Certification Regime

23-01-2019

The FCA has repeatedly made clear that it will turn its regulatory focus on culture over the coming year and all firms should therefore be considering how good culture is embedded within their organisations, from the top down.

This is particularly relevant to fitness and propriety assessments both for firms already within the Senior Managers and Certification Regime and those that will come into scope on 9 December 2019. 

It is worth remembering that, whilst the criteria set out in the FIT section of the FCA Handbook does not explicitly refer to them, the regulator has made clear that, for the purpose of a fitness and propriety assessment, non-financial behavioural and cultural issues may be taken into consideration.

In the context of sexual harassment, Megan Butler, executive director of the FCA, stated in her speech to the Women and Equalities Committee in May 2018:

When we talk about being fit and proper…we are not merely talking about financial decision making but also in terms of culture…we do not compartmentalise what makes people fit and proper.

In a speech on 19 December 2018, Christopher Woolard, executive director of strategy and competition at the FCA, took this a step further. He said:

We consider [diversity and inclusion] issues may have an impact on the fitness and propriety of senior managers. The senior managers and certification regime is key in this. It ensures that senior executives are directly accountable for functions which fall under their responsibility and are ‘fit and proper’.

He went on to say:

In our judgement, the way in which a senior manager approaches issues around diversity may be relevant to our assessment of their competence and character.

Firms themselves may also be on the hook. Woolard stated:

The way firms handle non-financial misconduct, including allegations of sexual misconduct, is potentially relevant to our assessment of that firm.

Woolard pointed out that, after Butler spoke out about non-financial misconduct in May 2018, the FCA received its highest number of whistleblower disclosures, including disclosures about gender, racism, bullying and homophobia.

So, what does this mean for firms?

It would appear that carrying out a fitness and propriety assessment will need to involve an inquiry into all aspects of an individual’s behaviour, not just their conduct and capability in relation to financial matters.  Specifically on sexual harassment, the House of Commons Women’s and Equalities committee has called on regulators to tackle workplace sexual harassment.

The committee urged regulators to make it clear that sexual harassment by regulated persons is a breach of regulatory requirements by the individual and their organisation and that such breaches must be taken into account when considering fitness and propriety.  It is in this light that Woolard’s speech in December must be read and financial services firms must take heed.

Separately, FCA authorised firms who have not yet become signatories would do well to consider signing up to the Women in Finance Charter to ensure they are able to demonstrate to the FCA that they are putting their houses in order.  The Women in Finance Charter requires signatories to appoint a senior executive to be responsible for gender diversity and inclusion and to set internal targets for gender diversity in senior management. One of the requirements of the Charter is that firms must be able to demonstrate how they have linked executive variable pay to delivery against their gender diversity targets. This should assist in focusing minds.

Read more on this from the FCA

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