Non-financial misconduct is misconduct, plain and simple

9 November 2020

The FCA announced on 5 November that it has banned three individuals from working in the financial services industry for non-financial misconduct.


Russell David Jameson, Mark Horsey, and Frank Cochran have all been prohibited from working in the financial services industry following findings that they were not ‘fit and proper’ persons on account of their criminal convictions for sexual (and in the case of Cochran, domestic violence) offences.

This decision shows that the FCA is making practical application of a principle which has been the subject of significant and growing focus for the regulator for the last couple of years. From Megan Butler’s assurances to the Women and Equalities Committee in 2018, via Nausicaa Delfas’ speech at the Women in Finance Summit 2019, to the ‘Dear CEO Letter’ of January this year, the FCA has repeatedly made clear that it views sexual harassment as misconduct which falls within the scope of the regulatory framework, and has every intention of tackling the issue with the same vigour as any other type of misconduct.

In relation to enforcement action it may take against firms for tolerating this type of conduct, the FCA considers the problem through the lens of how it impacts on, or is indicative of, a firm’s culture. A firm tolerating sexual harassment or other non-financial misconduct is indicative of a culture where people would not feel able to speak up or challenge decisions, and would therefore be an obstacle to retaining the best and most diverse talent, which in turn means a firm can miss out on making the best decisions when it comes to conduct of their business and their management of risk.   

Although the misconduct of these individuals took place whilst they were approved under the old Approved Person regime, the position under the SMCR should be no different. As part of their approval of senior managers the FCA undertakes an assessment as to their fitness and propriety, which will take into account someone’s competence, capability, honesty, integrity and reputation; for certified persons, the onus for making this assessment now rests with the firm. Relevant to that assessment is whether there are any known issues of non-financial misconduct relating to that person, which can include whether an individual has had a criminal conviction or sanction for discrimination, harassment or sexual misconduct. A failure to meet this requirement of fitness and propriety may lead to certification being withdrawn and potentially, as happened in these cases, the individual being prohibited from working in the regulated sector.

Senior managers in turn under the new regime are expected to take responsibility for what happens on their watch. In its ‘Dear CEO Letter’ of 6 January 2020 the FCA expressly stated that “a senior manager’s failure to take reasonable steps to address non-financial misconduct could lead us to determine that they are not fit and proper. We expect firms and the Boards of firms to take this into account when considering the suitability and performance of (potential) senior managers and other senior leaders.”

The cascading of responsibility down to individuals who are themselves based in firms will, it is hoped, create a real opportunity for a culture change in financial services. Having a vested interest in the elimination of misconduct, financial or otherwise, should mean that those in positions of seniority will themselves become drivers for change and strong ‘on the ground’ allies for the regulator in their ongoing mission to reduce harm of all kinds in the financial services sector.

Further INformation

For further information on the issues raised in this news post, please contact a member of our criminal litigation team.

 

About the Author

Anna Holmes is an Associate in our Criminal Litigation team. She is an experienced criminal law practitioner who has represented clients in respect of a wide range of offences and has extensive experience in dealing with vulnerable clients.

 

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