FCA To Consider Non-financial Misconduct Of Senior Managers

FCA to consider non-financial conduct under SMCR and strengthen whistleblower protections

Britain's financial regulator, the Financial Conduct Authority (FCA), advised financial firms that it will use its senior managers and certification regime (SMCR) to hold financial firms accountable for sexual harassment and other non-financial misconduct. The regulator will do so both by considering behavioral misconduct when assessing regulated senior managers, as well as by boosting its own support of whistleblowers who report misconduct.

FCA tackles issues of firm culture with SMCR

The #MeToo movement and the exposure of rampant sexual harassment by high-profile men have only added to the concerns regulators have been voicing since the 2009 Financial Crisis about the culture in financial firms. In 2016, the FCA responded to such concerns by beginning the implementation of the SMCR to tackle such issues by making financial institutions — and individuals in senior positions — accountable for conduct risk breaches.   

Non-financial misconduct considered in SMCR fitness assessments

One aspect of the SMCR is the FCA's annual review of the fitness and propriety of staff with the potential to cause 'significant harm' to the financial institution or its customers. While much of the focus of the FCA's review of senior managers under the SMCR is on financial decisions, the FCA recently made it clear it will consider not only a senior manager's financial decision-making when assessing suitability for such roles, but any non-financial conduct as well. This decision is based on the premise that a culture that does not tolerate behavioral misconduct is also one in which senior managers are more apt to make the best business and risk decisions with respect to financial matters.

Whistleblowers need more protection

Likewise, such a culture also encourages those who witness or experience behavioral misconduct to speak up against such behavior. According to the FCA, however, the majority of British banks are not consistent in their assessment and escalation of whistleblower concerns and some need to improve their protections against victimization for whistleblowers. The FCA itself has plans to enhance the way it maintains whistleblower confidentiality, improve the sharing of information between supervision and enforcement teams and senior oversight of investigations.

These changes come following the FCA's receipt of an influx of whistleblower disclosures following its warning to financial firms against ignoring sexual harassment in May 2018. While such disclosures were not restricted to sexual harassment, they do highlight the extent to which the #MeToo movement may have influenced individuals to stand up against misconduct.

Firms must be prepared to address non-financial misconduct

Firms can no longer rely on victims to remain quiet but must instead calculate the risk of a politically or financially important perpetrator against the potential financial, legal and reputational costs of a scandal. Given the potential risks non-financial misconduct presents in today's environment, firms must be prepared to handle matters when whistleblowers come forward and/or dealing sexual harassment of other misconduct. This means providing training for all employees on standard whistleblowing procedures, as well as more detailed training and guidance for senior managers responsible for investigating and dealing with issues.

Online compliance training resources, such as Thomson Reuters' Preventing Discrimination and Harassment course is an easy way to ensure employees are aware of and understand what constitutes sexual harassment, as well as how to report any concerns related to sexual harassment or other misconduct.

Written by:

Thomson Reuters Regulatory Intelligence and Compliance Learning

Thomson Reuters Regulatory Intelligence and Compliance Learning on:

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