The FCA’s approach to non-financial misconduct


Following the recently codified guidance from the SRA on dealing with sexual misconduct within law firms, this has brought into question whether the FCA should take the same or similar approach for not only sexual misconduct but all forms of non-financial misconduct. Within the legal profession, cases of misconduct reported to the SRA significantly increased in the 5 years following the #MeToo movement; over 250 reports were made during this 5 year period compared with 30 in the 5 years prior.

As it currently stands, the FCA has not yet released detailed guidance to clarify how non-financial misconduct should be assessed and investigated by firms, or when misconduct will impact the fitness and propriety of individuals. In addition, there are very few published examples from the FCA as to what constitutes non-financial misconduct; those that are published lean towards the more extreme end of the spectrum whereas examples of more minor cases or where misconduct happens outside of the workplace still remains a grey area that Firms are expected to grapple through on their own. As well as the published examples, the subject of non-financial misconduct as a whole has only been addressed in a handful of speeches or letters from the FCA, however with the SRA’s recent move to codify its position on sexual misconduct, it raises the question whether the FCA should and will follow suit.

In a joint discussion paper from the FCA, PRA and Bank of England concerning diversity and inclusion improvements in financial services, it was recognised by the regulators that Firms may find it helpful to have guidance as to what constitutes ‘non-financial misconduct’; this was followed up by a suggestion that the regulator may seek to develop guidance which includes examples of sexual harassment, bullying and discrimination. Also mentioned in the discussion paper was the acknowledged benefit to Firms that guidance on how such behaviour, or failure to take reasonable steps to address the behaviour could result in a breach of the Conduct rules. The regulators indicated that the discussion paper would be followed up by a Policy Statement in Q3 2022, but it is now understood that a consultation paper is coming shortly followed by a Policy Statement in 2023. These new materials from the FCA may include guidance on non-financial misconduct but we are yet to see if the FCA takes what seems to be an opportune moment to provide some more detailed guidance on the matter.

Whilst Firms in this sector wait for detailed guidance from the FCA, they must continue to tackle allegations of non-financial misconduct with the limited resources that are available. However, the newly released guidance from the SRA can be a helpful referencing tool and could be used by Firms when assessing cases of non-financial misconduct. Although the SRA guidance is currently only focused on sexual misconduct, there are elements which can be applied on a more general basis. It is clear however, that Financial Services Firms would benefit from a more consistent approach when dealing with allegations of this nature in the future. 

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