FCA to investigate firms following non-financial misconduct and bullying claims

The FCA has announced that it will investigate banks, insurers and brokers on the frequency of sexual misconduct and bullying claims and the use of non-disclosure agreements (NDAs) to silence reports.

As part of the Treasury Committee’s Sexism in the City inquiry, which is exploring whether enough has been done to battle misogyny and sexism in the financial services sector, the FCA has pledged to probe misconduct and bullying claims, and the use of NDAs to resolve them.

The release of a summary of private Committee hearings held as part of the inquiry has revealed that non-financial misconduct is ubiquitous in the industry and highlights significant issues with the way claims are being resolved.

MPs hear that Financial Services Sector is still an ‘old boys club’ with ‘tokenistic’ DEI initiatives

As part of the inquiry, the Treasury met with a range of women from the financial services industry, from banks, insurance and asset management companies.

The committee heard that, despite some noting an increase in inclusivity, most women felt that the sector remained an ‘old boys club’, rife with sexual misconduct and driven by misogyny and sexism. Attendees maintained that, despite a reduction in explicit displays of sexism and misogyny, often masquerading as office ‘banter’, misogynistic attitudes persist throughout the financial sector, but are becoming increasingly ‘underhand’ and ‘pernicious’.

Shockingly, most attendees had either been a victim of sexual harassment or knew a colleague who had. MPs also heard how sexual harassment had begun to move from the office to work conferences and trips. The committee also heard that women felt that diversity and inclusion initiatives were often ‘tokenistic’, ‘box-ticking’ exercises unable to affect real change.

Most of the women who had gone through the process of reporting inappropriate behaviour, or knew someone who had, recalled a negative experience, and felt it apparent that the role of many HR departments was to protect the firm, not the victim. Attendees thought that NDAs were utilised in sexual harassment cases to swiftly quash grievances, gag victims and protect the reputation of perpetrators and firms, ultimately removing the incentive for firms to take definitive action to prevent misconduct.

The women who shared their experiences recommended that firms be required to reveal the number of NDAs used in sexual misconduct cases, and for the FCA’s fitness and propriety assessments to cover sexual misconduct.

FCA Pledge to Investigate

Both Sarah Pritchard, the FCA’s Executive Director for Markets and Internationals, and Nikhil Rathi, the regulator’s Chief Executive, appeared before the Committee to give evidence. Pritchard told MPs that the FCA will request data from banks, insurers, and brokers on the number of non-financial misconduct claims they have received, along with “methods of detection and methods of resolution”. The regulator has not confirmed whether the findings would be made public.

Pritchard added that, when exploring how firms determine and resolve non-financial misconduct “If we see […] the use of NDAs alongside non-financial misconduct coming through that data […] we will be able to take that into account in our future supervisory work”. She did not expand on how the FCA would respond to firms who had repeatedly used NDAs, but stressed there are valid reasons why an NDA may be used to secure the confidentiality of settlements.  

Last September the FCA published their consultation on how firms detect and deal with non-financial misconduct. It forms part of their broader consultation on diversity and inclusion in the financial sector, prompted by unsatisfactory progress within the sector, which proposes a new regulatory framework. The consultation did not propose to compel firms to publish data concerning the number of NDAs issued.

Nikhil Rathi, FCA Chief Executive told the Committee: “We recognise that there has been feedback on this point in the consultation so we’re open to understanding whether those are refinements we can make to collect statistics”. He acknowledged that, in cases of non-financial misconduct, the FCA could see “there could be a case for looking at” collecting NDA data.

The proposals also include clearer guidance on the FCA’s view that non-financial misconduct is relevant to the fitness and propriety of those working in the finance sector. Yet, Rathi told the Committee that in the absence of a prescribed list of offences which, after conviction, would bar an individual from a regulated sector, the FCA must demonstrate that the misconduct is directly relevant to their role within financial services to exercise their prohibition powers.

With the regulator currently considering industry feedback on their consultation, discussions and developments stemming from the inquiry could trigger significant reconsideration from the FCA regarding their next steps. Given that the women who shared their experiences with the Committee recommended that firms be mandated to reveal NDA figures, and for ‘fit and proper’ tests to consider sexual misconduct, some may feel the FCA should take firmer action to unveil cultures of complicity and potential victim gagging.