A surge of whistleblower complaints about sexual harassment, homophobia and bullying across the City of London has prompted the UK’s financial regulator to examine potential links between a company’s lack of diversity and misconduct.
In its strongest warning to date, the Financial Conduct Authority put senior managers on notice that their futures in the City were at risk if they did not take diversity seriously, while companies faced fines. The FCA said it would start scrutinising how institutions were approaching the issue after a 220 per cent increase in whistleblowing complaints about “non-financial” behaviour during the past 12 months.
The watchdog already has live investigations into companies that are suspected of not taking allegations seriously enough, Chris Woolard, the FCA’s executive director of strategy and competition, told the Financial Times.
Earlier on Wednesday, Mr Woolard gave a speech in which he stressed the regulator would take action over any kind of misconduct, financial or otherwise.
“The way firms handle non-financial misconduct, including allegations of sexual misconduct, is potentially relevant to our assessment of that firm, in the same way that their handling of insider dealing, market manipulation or any other misconduct is.”
The warning came after the FCA received 64 whistleblowing reports about non-financial behaviour — including complaints about discrimination, harassment and racism — in 2018, up from 20 the previous year. That compared with a total of about 1,100 whistleblowing reports made to the FCA in the 2017-18 financial year, according to its most recent statistics.
Mr Woolard said that the number was “small . . . but striking”, adding that the FCA suspected they had “only scratched the surface”.
He said there was a sharp increase in such reports after Megan Butler, the FCA’s head of supervision, first told lawmakers in May that the regulator would deploy tough accountability rules known as the senior managers regime — which makes top brass liable for a ban or fine for failings on their watch — when it sees a particular institution has an issue with sexual harassment.
The rules were put in place in an attempt to improve culture in the City after a string of misconduct scandals.
The regime has already seen Jes Staley, the chief executive of Barclays, fined for twice trying to uncover the identity of an anonymous whistleblower, although the allegations in that case did not involve sexual misconduct.
The #metoo movement and the Presidents Club scandal have also forced the issue of harassment in the City to the fore.
But some companies have interpreted this to mean that male managers should not socialise with female employees — something that Mr Woolard argued was missing the point and could perpetuate “old boys’ networks”.
The FCA expected to be informed when allegations were “serious and material, or they involve a senior manager,” Mr Woolard told the FT. He also stressed that the FCA believed gagging orders, which are prevalent across the City, should neither override a company’s duty to be open with the regulator nor prevent whistleblowers from coming forward.
Lorraine Johnston, a regulatory lawyer at Ashurst, the law firm, said: “Bad behaviour, in whatever form, is exactly what the FCA is looking to stamp out in its conduct risk agenda. Today’s speech importantly, puts non-financial misconduct on the same footing as traditional financial misconduct like market abuse or insider dealing.”
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