Amanda Khatri
Editorial Manager
Sexual harassment whistleblower reports in the City of London more than tripled in 2023.
The Financial Conduct Authority (FCA) said it will survey banks, insurers, and brokers on their use of non-disclosure agreements (NDA), which can gag victims and prevent any real cultural change.
The rise emphasises how important it is to have robust compliance processes to minimise sexual harassment in the workplace and ensure reports are dealt with promptly and thoroughly.
The FCA’s chief executive Nikhil Rathi, and executive director for markets and internationals, Sarah Pritchard, told UK lawmakers at a ‘Sexism in the City’ inquiry that it will mandate banks to release data on the total number of non-financial sexual misconduct claims as well as the “methods of detection and methods of resolution”.
“If we see … the use of NDAs alongside non-financial misconduct coming through that data, we will be able to take that into account in our future supervisory work,” Pritchard said.
The increase may be fuelled by employees spending more time in the office and with colleagues outside of working hours, following the end of social distancing, said employment law specialists Fox & Partners in a note to clients.
MPs on the influential Treasury Select Committee also heard how sexual harassment in the financial services sector has shifted away from the office to conferences and work trips.
“Clearly the FCA is concerned that its existing rules aren’t working in the way they’d expected and are using their powers to undertake further analysis with these information requests,” said Lorraine Johnston, financial services partner at global law firm Ashurst.
“While the next steps may be further scrutiny at individual firms, it is more likely that the FCA will consider what changes are needed to the rules themselves and what wider effect that should have across the industry”.
What did the ‘Sexism in the City’ inquiry investigate?
The Treasury’s inquiry assessed whether enough has been done to combat misogyny in financial services and what, if any, impact the #MeToo movement had on the sector.
MPs heard evidence of widespread non-financial misconduct within the industry, as well as significant issues with how these claims are dealt with and resolved.
As part of the inquiry, the Treasury met with a variety of women working in financial services to reveal what was really going on behind closed doors.
Amanda Blanc, the boss of insurance giant Aviva, told MPs she heard “absolutely appalling” accounts of sexual harassment, including instances where women were followed into hotel rooms or were told their pregnancies were “inconvenient”.
Whilst some women giving evidence did highlight an increase in inclusivity and a decrease in sexist banter at the office, many labelled the City as still very much an “old boys club” where no one wants to “rock the boat” built on misogyny.
The #MeToo movement gained momentum in 2017 following reports of sexual abuse by American film producer Harvey Weinstein, as survivors of sexual violence from a broad range of industries came forward.
Yet while film, music, and other industries have held some form of reckoning, the finance sector hasn’t been as successful in cleaning itself up, the Treasury heard.
Many of the women giving evidence had either been a victim or knew a colleague who was, and also reported raising concerns with HR, who they claimed were often only attempting to protect the company rather than the victims.
Witnesses said sexual harassment NDAs silenced victims while removing any responsibility from the firm to implement cultural changes and prevent future sexual misconduct.
Whilst conversations on diversity and inclusion were often “in the right place” at the senior board level, this wasn’t the case for the middle management level, the inquiry heard, despite being an area of major influence inside a business.
City executives giving evidence also said diversity and inclusion initiatives were “tokenistic” and deemed as “box-ticking” exercises that do not lead to a real transformation of culture and treatment of women.
How is the FCA tackling harassment?
The FCA has increased its focus on non-financial misconduct over the last five years.
It oversees the Senior Managers and Certification Regime (SMCR), which makes senior executives liable for misconduct cases that happen on their watch regardless of their level of involvement.
The FCA also carries out a standard ‘fit and proper person’ test to assess the fitness of individuals applying to become senior managers, certification staff and non-executive directors (NEDs) at businesses.
As part of the hiring process for managers, sexual harassment behaviours alongside a person’s honesty, integrity and reputation, competence and capability, and financial soundness are assessed when being considered for a role.
As part of the FCA’s test, organisations are expected to assess the fitness of their senior management on an ongoing basis and to certify them at least once a year.
Despite its efforts, the rare number of enforcements have typically been bans or fines for those already convicted for serious offences.
Experts say more focus is needed for nuanced misconduct such as using social media for harassment or bullying, requiring better technology to pick up on these incidents.
It is expected that the FCA will publish further guidance on non-financial misconduct, diversity and inclusion, and supporting whistleblowers, in the coming months.
“Non-financial misconduct – including sexual harassment – is misconduct, plain and simple,” the FCA said in a statement.
“We continue to focus on culture in firms and take whistleblowing reports very seriously. We will act where we see behaviour that creates unsafe or unhealthy cultures.”
How should firms respond to the Sexism in the City inquiry?
Despite efforts to improve behaviours in recent years, the financial services industry is still rife with sexual misconduct, bullying, harassment, and sexism, the Treasury committee heard.
In 2023, members of the Confederation of British Industry (CBI), the nation’s “biggest lobby group”, voted to revamp the organisation following a string of sexual misconduct reports linked to its own leadership group.
The scandal resulted in big-name members including John Lewis, BMW, Virgin Media, 02, Aviva, and Mastercard ditching the association.
More than 65 firms paused their CBI membership as it was “ethically untenable to now be associated with the CBI”. The scandal shows just how damaging allegations can be to an organisation’s reputation when poor workplace culture leads to misconduct.
In another significant turn of events, Odey Asset Management is shuttering its doors amid a flurry of misconduct allegations against its founder, Crispin Odey. According to the Financial Times, 13 women came forward accusing Odey of sexual assault and harassment. In response, the FCA initiated an investigation that included a “fit and proper” assessment of Odey.
To prevent sexual misconduct or other inappropriate behaviours, the message needs to trickle down from the top from senior managers to all other employees, alongside proper and fair processes to investigate the claims, experts said.
“When it comes to tackling the issue of sexual harassment, it’s vital that companies have in place proper systems and processes to identify and properly investigate harassment claims,” said Catriona Watt, partner at Fox & Partners.
CUBE comment
The regulators are clear, financial services must detoxify themselves with more effective safeguards to protect victims and present clear guidance on how to handle allegations sensitively.
Diversity and inclusion must be more than a box-ticking exercise to drive change at every level. Without ensuring the right protection for the accuser, perpetrators can walk free without any repercussions, setting the wrong tone for the rest of the organisation.
The FCA’s serious stance on this matter may encourage employees to speak up should they become victims or witnesses to sexual misconduct. However, it will still take time to completely change the culture across every single business operating in financial services.
As the above demonstrates, the regulatory obligations around diversity and inclusion, senior manager accountability, and sexual misconduct are constantly changing to ensure the best possible standards across the sector.
To ensure your organisation is always ahead of the curve, leverage CUBE’s Automated Regulatory Intelligence to comply with every relevant regulation, in every language and jurisdiction.