Misconduct in Financial Services

Misconduct in Financial Services

As the festive season is once more upon us, there are guaranteed to be party related incidents that leave a headache that lasts beyond the next morning.

However, for those in financial services, could a “misplaced” hand (or even comment) lead to the end of an individual’s career?

These days, the FCA’s position is clear: ‘non-financial misconduct is misconduct, plain and simple’.

There have now been some high-profile examples of individuals receiving a prohibition order for serious, sexual offences committed outside of work, which can be career ending.

However, it can be more difficult to establish how less serious cases (than prosecuted criminal offences with custodial sentences) will be dealt with by the regulator and should be dealt with by firms.

Where a senior manager or certified person has been shown to have committed non-financial misconduct (for example sexual harassment or other discriminatory behaviour), this should lead to consideration of whether the individual concerned remains fit and proper for their role. In particular, it may be that the individual is now considered to lack integrity.

Even if the employee is still considered to be fit and proper for their role by their current employer, if the employee leaves their employment and wants to seek a new certified role or senior manager function elsewhere, their prospective new firm will need to seek a regulatory reference from any employers in the past six years. The regulatory reference template includes a requirement to respond to the question: “Are we aware of any other information that we reasonably consider to be relevant to your assessment of whether the individual is fit and proper?”

This question is designed to catch such incidents of misconduct which may have been deemed not quite to have tipped the individual out of being considered fit and proper and to ensure that all relevant matters to the fitness and propriety assessment are disclosed to the prospective firm.

The regulator’s priority here is to stop the “rolling bad apples” going from one financial services firm to another.

With an increased focus on non-financial misconduct, even if the FCA may not seek a prohibition notice for an employee caught sexually harassing another individual, or otherwise acting in a discriminatory manner, they may well refuse to reapprove the employee as fit and proper for senior manager roles. In the context of a regulatory regime, increasingly prioritising the importance of a good culture, firms and individuals should expect that the regulator will take an increasingly tough approach to non-financial misconduct.