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02 Jul 2018

Claire Cross comments on how the FCA could use the SMCR as a tool to tackle sexual harassment in Thomson Reuters Regulatory Intelligence

Regulation is an important incentive for firms to tackle sexual harassment in the financial services industry, and the Senior Managers and Certification Regime (SMCR) is a central part of that strategy, a senior official said.

In her recent testimony to the Women and Equalities Committee in the UK Parliament, Megan Butler, director of supervision – investment and wholesale at the Financial Conduct Authority (FCA), was asked whether there were aspects of the regulator’s role that relate to the way firms tackle sexual harassment.

“Misconduct is misconduct, whether it’s financial or non-financial. The key tool that we deploy in this is area is the Senior Managers and Certification Regime,” Butler told the committee in response.

Partner Claire Cross commented:

“This is a further example of the FCA seeking to clean up the financial services industry and, in particular, address the perceived ‘toxic’ culture of the banking sector.

“It is significant, in that FIT 2.1 (the section of the FCA Handbook which deals with evaluating a person’s ‘honesty, integrity and reputation’) has always stated that ‘all relevant matters should be considered’ when making a decision on fitness and propriety. However, up until recently the focus has traditionally been limited to considering behaviour which could call into question an individual’s ability to make financial decisions.

“Earlier this year in the Paul Flower’s case, the FCA made it clear that a pattern of disregard for standards not directly related to financial decision making was capable of demonstrating a lack of integrity. While the circumstances in that case were extreme, Ms Butler’s comments now indicate that those involved in assessing fitness and propriety under the SMCR regime will need to take a more holistic approach in
reaching their decisions. Any behaviour that could be seen to impact on an individual’s reputation will need to be taken into consideration as to whether they are fit and proper.

“Under the SCMR regime, the responsibility for assessing individuals as fit and proper shifted from the regulator to the relevant firm. One of those firm’s duties is to consider, at least once a year, whether there are any grounds for the FCA/PRA to withdraw approval for their Senior Managers. Ms Butler is making clear that a finding of misconduct of sexual harassment or bullying may well be seen by the regulator as a possible ground for withdrawal of approval.”

Claire’s comments were originally published in Thomson Reuters Regulatory Intelligence.