Handling Harassment: the changing nature of misconduct
As the Financial Conduct Authority makes a push for greater diversity and less discrimination, Matthew Ramsay looks at how the nature of misconduct is changing.
Firms in the past may have sought to sweep harassment claims under the carpet. That modus operandi is no longer tolerated and most firms recognise that.
We’ve actually been to several asset management and private equity clients over the last six months doing bespoke harassment re-training for all line managers, stressing that the message from the top is one of zero tolerance. I believe on a cultural level that message is now being heard and acted upon.
The FCA’s focus on non-financial misconduct as a separate header of fitness and propriety is the right approach.
Whistleblowing
The other key talking point in this field is whistleblowing. As Woolard pointed out, there has been a noticeable upturn in reports that concern issues such as discrimination and sexual harassment in financial services. Whether this is a good or bad sign is open to interpretation. Are more people coming forward because they feel emboldened or is it because there’s more to complain or notify about?
Either way, it’s good that the FCA is talking about it. Because of the regulatory pressure in the financial services sector, we’re seeing more of a responsible approach from employers than perhaps in un-regulated sectors. It may be because of fear or a genuine commitment to cultural change. Whatever the reason, it can only be a good thing that people are putting in place channels of communication and that allegations are being investigated impartially.
That said, while those who choose to voice their concerns are now better protected as a matter of law, in practice it’s not so clear cut. While bigger firms often have whistleblowing hotlines and proper procedures in place, some more antiquated firms deal with it a little less robustly and still see whistleblowing as troublemaking.
It’s a hard area to deal with from an employer’s perspective, particularly in financial services where disclosures might occur on a daily basis. For example, compliance staff questioning whether a particular trade was authorised will be making a protected disclosure. If they are then subjected to a detriment, the employer might be liable.
The reaction of the employer to disclosures is key. If they respond badly to any form of allegation, this can transform what might be an innocent question or a complaint without substance into a valid legal claim for detriment or victimisation.
It is vital that line managers react calmly, even if they’ve been the subject of a complaint. That first reaction, before HR or in-house council have become involved, is critical.
Each accusation should then be dealt with on its own merits. Procedures can be the employer’s friend here – a well-run investigation is the simplest way of demonstrating that any disciplinary or other outcomes are justified on the facts.
Firms shouldn’t be defensive about whistleblowing. Clearly there are going to be occasions where the complaint is frivolous or self-serving or just bogus. But they need to be looked at, especially if they could be a matter of public interest.
Channels of communication
How a firm responds in practice is key. Putting in place a reporting procedure and behavioural policy is relatively straightforward. It’s how you act on each complaint that matters. We are seeing in financial services an embracing of the new culture of openness. Part of that has been driven by the introduction of the Senior Managers and Certification Regime (SMCR).
We’ve spent a lot of time engaging with the smaller asset management and hedge fund community to try and prepare them for SMCR. By imposing individual responsibility on senior managers, the SMCR increases the importance of good behaviours, both financially and non-financially across the industry.
Fit and proper
It’s important to note that if the FCA wants to incorporate all the non-financial elements into the fit and proper test, it needs to adjust the handbook accordingly. It is unfair to regulated individuals to expect them to have to read through the FCA senior management speeches to deduce what elements of non-financial misconduct are or aren’t going to be taken into account.
One difficulty is that sexual harassment can cover a wide range of types of misconduct, from relatively ‘innocent banter’ through to the most serious cases of sexual assault. The danger is you take the most serious end, legislate for that, and encapsulate all other forms. A sensible approach would be to be proportionate depending on the misconduct in question.
It is worth mentioning that the Equality Act builds in some forms of proportionality already: the prohibited act is creating a hostile or offensive environment for someone. Whether you intend to create that atmosphere is irrelevant, the focus is on the victim’s perception of the conduct. But it has to be reasonable for the victim to react in the way they do.
Policies and training
One of the things we’ve been emphasising to staff in the various training programmes we’ve run is personal responsibility. The easiest thing to do if you receive anything inappropriate – in whatever format – is simply to delete it. It’s not just the house’s reputation, but the individual’s that could be irreparably damaged just by clicking forward on an email.
It is the job of compliance, legal and HR to translate obligations into easy-to-read English in their policies and handbooks. They then need to explain to people via proper training what the boundaries are, and then enforce their policies effectively, making it clear that if they overstep them, the FCA will take action, and so will the firm.
Diversity and inclusion
The focus on addressing sexual misconduct is only one aspect of firms’ wider diversity and inclusion efforts. Financial services firms struggle with diversity at the most senior end because of the time lag between an intake that’s diverse and a leadership that’s diverse. But there is undoubtedly pressure for them to do more, whether it’s CV-blind recruitment or having explicit quotas for senior management (gender, race and disability). For larger firms, gender pay reporting is another tool to improve transparency or remuneration and promotion.
The City needs to better reflect the society it works in. That may take time, but the cultural shifts that have taken place in recent years must leave us hopeful that past failings are being addressed.
About the author
Matthew Ramsey, professional support lawyer, Macfarlanes.