FCA will back whistleblowers in sexual harassment cases

A letter from the FCA (3-page / 1.9MB PDF) to Maria Miller, chair of the House of Commons Women and Equalities Committee, sets out the regulator's position on workplace sexual harassment along with "what tools we have available to ensure that the firms we regulate take the issue seriously". It confirms that the FCA views sexual harassment as "misconduct which falls within the scope of our regulatory framework", against which the FCA will take action.

"We consider all whistleblowing information we receive, and would be especially interested if firms were systemically mishandling allegations or incubating a culture of sexual harassment," Megan Butler, the FCA's director of supervision for investment and wholesale firms, said in the letter. "Our rules are clear that so called 'gagging orders' do not affect an individual's ability to 'blow the whistle' by making a disclosure to the FCA."

The Women and Equalities Committee wrote in July to 10 regulatory bodies operating in the healthcare, law, education, financial services and other sectors, asking them to explain what they were doing to tackle workplace sexual harassment. Butler's letter, which was published on the committee's website last week, is the FCA's response to that inquiry.

Butler appeared before the committee in May as part of its wider work on workplace sexual harassment, which concluded with a report, published in July. During her appearance, Butler said that the FCA intended to use the senior managers and certification regime (SMCR) to hold financial firms to account for sexual harassment, and that it expected firms to take the behaviour of individuals into account as part of the 'fit and proper' assessment required under these rules.

In her latest correspondence with the committee, Butler expanded on these comments.

"Senior managers must be approved by us to carry out … key roles, and we assess their competence, honesty, integrity and reputation to ensure that they are 'fit and proper' to do so," she said in the letter. "This means we will, for example, consider if an individual has had a criminal conviction, sanctions for discrimination, harassment or sexual misconduct."

"As you will appreciate, for legal reasons I am not in a position to discuss specific cases. However, I am able to say that there have been instances where either we or a firm we supervise have found an individual not to be fit and proper on the basis of their 'non-financial' conduct, with the consequence that they were unable to take up or else continue in their role. Where appropriate, we will continue to pursue such measures in future," she said.

Responsibility for ensuring that certified staff, who are not directly authorised by the FCA, are 'fit and proper' lies with a named senior manager on behalf of the firm, Butler said. 'Authorised persons' at firms which are not yet subject to the SMCR, which will be extended to insurers in December and to other regulated firms next year, are subject to a similar assessment of fitness and propriety by the FCA, she said.

"Culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history, and we expect firms to foster healthy cultures which support the spirit of regulation in preventing harm to consumers and markets," she said. "A culture where sexual harassment is tolerated is not one which would encourage people to speak up and be heard, or to challenge decisions."

"In addition to making it clear that gagging clauses cannot prevent whistleblowing, the FCA also confirmed that if an individual is guilty or harassment then that will affect their assessment of whether the individual is 'fit and proper'," said Jon Fisher, financial services employment law expert at Pinsent Masons, the law firm behind Out-Law.com. "It is something that firms subject to the SMCR will also have to take into account when certifying whether their staff are fit and proper."

"It is important for firms to put in place specific policies relating to harassment and to review them regularly to check that they are effective. Both the FCA and the PRA are committed to achieving cultural change within the sector, and see diversity as playing a large part in effecting that change. To achieve that diversity, firms will need to ensure that harassment is easy to report, that allegations are handled sensitively and promptly and that individuals guilty of harassment are punished appropriately, which may include withholding certification," he said.