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Codifying non-financial misconduct is slow but important

Author: ICAEW Insights

Published: 03 May 2022

Fine for Lloyd’s syndicate member highlights need for firms to tackle issues such as harassment, bullying and sexual misconduct and ensure they have procedures in place to deal with cases as they arise.

In March Lloyd’s set a record fine of more than £1m for Atrium Underwriters for bullying and harassment, the largest fine it has imposed for misconduct. An employee engaged in a “systematic campaign of bullying against a junior employee over a number of years”; Atrium failed to deal with the case adequately and to notify Lloyd’s.

It also noted that Atrium’s senior male managers organised an annual event where a culture of heavy drinking, initiation games and sexual remarks about female staff were normalised. The ‘lad’s night out’ was an annual event up until 2018, and Lloyds in its role as a regulator of the insurance industry censured at least two senior members of staff for a culture of bullying and intimidation of junior staff at the event.

Lloyd’s of London had been under pressure since 2019 about its workplace culture, after one in 10 of 6,000 staff surveyed (out of a possible 46,000) said they had witnessed sexual harassment there.

The FCA issued a Dear CEO letter in 2020 to tackle the issue, after the widespread sexual harassment issue was widely publicised and drew attention to their relative inaction so far.

“How a firm handles non-financial misconduct throughout the organisation, including discrimination, harassment, victimisation and bullying, is indicative of a firm’s culture,” wrote Jonathan Davidson, Executive Director of Supervision, Retail and Authorisations.

Tellingly for the area, Davidson also went on to say that although work had been undertaken in the market to tackle the issue of non-financial misconduct, “it continues to be prevalent and will be a key focus for our supervision of firms and of senior managers”.

The fine is significant then as the first fine of its nature towards misogynistic non-financial misconduct and will be a marker for the insurance industry.

“It’s probably a precedent for Lloyds, but we don’t know what the FCA will do next. We are seeing more and more about how non-financial misconduct is dealt with among the professions,” said Philippa Kelly, former ICAEW Director, Financial Services.

Other cases

In comparison to other City regulators, the FCA’s fines in this area of non-financial misconduct concerned the more stigmatised crimes of accessing child pornography and convictions for assault.

The Lloyd’s fine serves as a comparator for other regulators across the Square Mile in an age where sexual misconduct is becoming more observed and therefore codified. A source told ICAEW Insights that the legal service regulator’s new guidance, which includes guidance for all lawyers regulated under the SRA and the Bar, includes sexual misconduct. 

But there are also nuances.

ICAEW itself decided not to exclude a senior EY partner who harassed a junior on a work ski trip, citing it as a one-off and stating that there was sufficient evidence that it would not happen again. The partner was severely reprimanded and fined £7,000.

In comparison to the Lloyds fine, where the behaviour and event was sanctioned by management and a regular occurrence, this was seen as an isolated mistake rather than part of a culture of misconduct.

“Firms are moving away from simply assuming people know how to behave, and know what’s appropriate,” said Kelly. “It’s easier for regulators to seek assurances from firms that they have the processes and procedures in place where there is some sort of codification. It can also give a clue to the less tangible things for supervisors to consider in terms of culture.”

Defining the area

In conversation with ICAEW, Nikesh Pandit, Barrister at 4-5 Gray’s Inn Square and Financial Services Faculty board member, said the key issue was to understand the type of conduct that falls within non-financial misconduct.

“The term really includes personal misbehaviour, such as sexual misconduct, sexual harassment, discrimination and bullying that’s committed inside or indeed outside the workplace. The recent focus has been on conduct largely relating to integrity rather than financial dishonesty. We’re seeing the FCA increasing its focus on that kind of conduct,” he said.

Megan Butler, who in 2018 was the FCA’s Executive Director for supervision, responded to a House of Commons paper that sexual harassment and other forms of non-financial misconduct can amount to a breach of the FCA’s conduct rules, which included the requirement to act with integrity.

Christopher Willard, then the Executive Director of Strategy and Competition, went further and gave a speech after that where he said non-financial misconduct is misconduct, plain and simple.

Pandit said individuals should become more mindful about non-financial misconduct both inside and outside of work: “I think the whole inside or outside work is quite interesting at the moment, because obviously, due to COVID-19, a lot more of us are working from home and those boundaries between work and home are blurred.” 

Good advice would be for accountants to remind themselves about relevant policies and procedures at work in this area, including those regarding diversity and inclusion, social media policies, whistleblowing policies, and reporting obligations.

“I think, as regulators grapple more with this area, there will be more guidance,” said Pandit. “I think it’s a duty of regulated professionals to keep on top of that guidance; it’s not just something that they should wait for their employers to put out there – there’s a real need to stay on top of matters that are coming out from the regulator if you’re a regulated professional.”

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