How does the FCA expect firms to handle non-financial misconduct? 

To date, published regulatory outcomes have focused on the most egregious end of the spectrum, with the FCA handing out bans and fines for those already convicted in the criminal courts of serious sexual offences.

However, these cases provide little guidance for FCA-regulated firms grappling with allegations of more nuanced conduct, such as the inappropriate use of social media on a personal account or allegations of bullying or sexual harassment in the workplace.

How does such misconduct in its various guises fit within the regulatory framework?

While not criminal in nature, such personal behaviour inside or outside of work may be relevant to the integrity and reputation elements of a regulated individual’s fitness and propriety. They may also be vehemently disputed by the employee concerned.

How does the FCA expect firms to deal with allegations of non-financial misconduct? And how does such misconduct in its various guises fit within the regulatory framework that governs the vast majority of financial services employees?

In tandem with potential disciplinary considerations, there are two principal regulatory components of the senior managers and certification regime to be worked through by firms dealing with such allegations: fitness and propriety and the conduct rules. 

Fitness and propriety

The fit and proper test is the standard the FCA expects firms to apply to its senior managers, certification staff and non-executive directors. Firms are required to assess the fitness and propriety of these individuals for their roles on an on-going basis and to certify them as such at least once a year.

The FCA sets out guidance in its handbook (Fit) as to what it expects firms to consider in assessing those individuals’ fitness and propriety. This includes honesty, integrity and reputation, competence and capability, and financial soundness.

The FCA held that approved individuals should conduct themselves with honesty and integrity in both their professional and personal capacity.

It is clear from the Fit guidance that this is a broad-reaching assessment, which includes personal matters insofar as these relate to the individual’s suitability to perform their function and that non-financial misconduct is relevant to the assessment of fitness and propriety.

Although the question of whether a person’s non-financial misconduct – particularly if it relates to conduct outside work – affects their ability to perform their role in a regulatory context is very fact-specific, the FCA’s enforcement action in this area provides some guidance to firms.

A few examples of cases in which the FCA issued a prohibition order (prohibiting an individual from performing a specified/regulated function) include the following: