The firm’s lawyers debated the FCA’s handling of the Consumer Duty and the subject of non-financial misconduct at a financial services employment conference featuring in-house lawyers, HR, and compliance teams.

Consumer Duty standards

The rules firms will need to abide by are enshrined in the Code of Conduct sourcebook (COCON). Compliance-led training will be critical as the FCA can request training records. Management Information (MI) metrics will also be key, so the board will need to be paying close attention to MIs. People management and policies will be critical to outcomes and success.

Principle 12 states that “a firm must act to deliver good outcomes for retail customers”, which is a broad principle open to interpretation. While all senior managers are responsible for these outcomes, firms should have appointed a non-executive level consumer champion leader in 2022 who will be responsible for ensuring the duty is being discussed regularly and in all relevant discussions.

The Duty extends beyond leaders, as noted in individual conduct rule 6, which reflects the new, higher standard of the Duty and the behaviour expected. “All conduct rules staff must act to deliver good outcomes for retail customers where the activities of the firm fall within the scope of the duty,” the rule says.

Notably, the individual conduct rule only applies to the extent that it is reasonable, taking into consideration someone’s seniority, role and responsibilities.

Sanctions enforcement trends

In a discussion on sanctions and accountability, including non-financial misconduct (NFM), Eversheds Sutherland partner Jake McQuitty outlined the changes to financial penalty frameworks. For firms, this means matrix structures in which penalties reflect the potential effect of breaches on the stability of the UK financial system.

For individuals, this means increasing the potential scale of any financial penalty by taking into account income earned over the full period of the breach rather than in a single tax year.

The Prudential Regulation Authority meanwhile, in its fining of Carlos Abarca in December 2022, initiated a benchmark for the regulatory scrutiny of firms’ operational resilience and third party risk, McQuitty said.

Non-financial misconduct

Giving an overview of the FCA’s approach to non-financial misconduct (NFM), including in particular sexual harassment, partner Paul Fontes asked when and to what extent this becomes a regulatory issue in the eyes of the FCA and other courts. Despite there being no mention of NFM in the FCA’s COCON, the FCA regards NFM as being relevant to the issue of “integrity”.

Former FCA director Megan Butler said in 2018: “Misconduct is misconduct, whether financial or non-financial.” But Fontes commented that regulators’ speeches or “Dear CEO” letters saying one thing while the COCON conduct rules remain unchanged leaves uncertainty as to when NFM will be a conduct rule breach (with potential career-threatening consequences) or affect the assessment of an individual as being “fit and proper”. This applies not just to sexual harassment but also to discrimination and bullying. Further guidance from the FCA on this is expected later this year.

A series of high-profile cases have highlighted the difficulty in determining when conduct in employees’ personal lives affects their suitability to carry out their roles as regulated professional. Whilst regulators appear keen to change the regulatory culture, the courts have on some occasions found that the necessary link between an individual’s personal conduct and their professional life has not been established:

• In March 2017, Jon Frensham was convicted of attempting to meet a child following sexual grooming. He committed this offence whilst he was an approved person, and whilst on bail for a similar offence. Fontes commented that in this case his conviction alone was not enough for the Upper Tribunal to uphold the FCA’s decision that he was not fit and proper. It was the fact that he had failed to be open and transparent with the regulator about his arrests and the criminal proceedings on several occasions which led them to support a prohibition notice on the basis that he lacked integrity.
• A 2020 case involving former Freshfields Bruckhaus Deringer partner Ryan Beckwith resulted in the High Court overturning a Solicitor’s Disciplinary Tribunal (SDT) decision to fine him following a sexual encounter with a more junior employee. The SDT had proceeded on the basis that the encounter was consensual and found that Beckwith had not abused his more senior position. In the circumstances the High Court found that this did not impact his professional status, even if some might regard his behaviour as inappropriate.

The panel commented that the current highly publicised case of Crispin Odey, was “a test of where the FCA is at now” in terms of its approach to non-financial misconduct. The decision by banks to promptly dissociate themselves from Odey Asset Management prompted some in the audience to ask: “Are banks ahead of the regulators?”.

Private and professional life

It was agreed more clarity is needed on what constitutes NFM and when in particular it becomes a regulatory issue. So, could the FCA learn from other regulators? Fontes highlighted the recent detailed guidance from The Solicitors Regulation Authority (SRA) on sexual misconduct including a series of criteria suggesting where the line is to be drawn between a solicitor’s private life and professional life, featuring consent, seriousness (such as coercion, repetition, or an abuse of a solicitor’s more senior position), and vulnerability.

The SRA Code of Conduct specifies: “You treat colleagues fairly and with respect. You do not bully or harass them or discriminate unfairly against them. If you are a manager you challenge behaviour that does not meet this standard.” The need for clear guidance from the FCA has been highlighted again as a result of the Odey case. The outcome of the current review of the Senior Managers and Certification Regime is awaited with interest.

The SRA’s guidance on sexual misconduct can be found on the organization’s website.