The call for cultural change in the financial and professional services sectors is not new. This has arguably been gathering pace since the financial crash of 2007/8. Could we though now be on the cusp of real change?
I was saddened to read the comments by Jonathan Davidson, the Financial Conduct Authority’s Director of Supervision, in The Times recently. He notes that there are still some City firms where an “unhealthy culture” exists, particularly in relation to sexual harassment. He also comments that, notwithstanding attention to this, such as with the #metoo movement, some managers still believe that there is “political correctness gone mad”.
In March 2016 the FCA brought in the Senior Managers and Certification Regime (“SMCR”) for big financial institutions. That regime is to be rolled out for most smaller FCA registered organisations with effect from 9 December 2019. Accordingly, its impact will shortly be felt from “top to bottom” within the financial services sector.
The SMCR has a significant focus on the “fitness and propriety” of individuals. One point made by Jonathan Davidson is that, as far as regulators are concerned, senior managers who allow an unhealthy culture in their organisations may themselves be showing that they are not “fit and proper.”
It is a feature of the SMCR that organisations have to have in place processes to vet their people for fitness and propriety and that every organisation has to make an annual declaration that all their people are fit and proper. It will be interesting to see the extent to which upholding good cultural values will form part of such processes and lead to firms changing their ways.
In addition to the SMRC, I believe that there are some other initiatives that may be indicators that change is afoot (or are they merely “fig leafs”)?
The initiatives
- In March 2018, the Solicitors Regulation Authority issued a strict Warning Notice (followed by a Law Society Practice Note in January 2019) which made clear that a solicitor drafting a non-disclosure agreement (“NDA”) could be committing professional misconduct. The SRA is not famed for its speed in taking action, but the Warning Notice came out quickly following the launch of the #metoo campaign.
- In July 2019, a report was produced by the All Party Parliamentary Group on Whistleblowing. It appears to be generally acknowledged across the political spectrum that whistleblowing is a “good thing” for exposing malpractice and that greater support for whistle blowers would lead to miscreants being more wary that their misdeeds will be called out and sanctions applied. The Report makes many interesting recommendations including: (a) that there should be a Government backed Office (akin to the Equality and Human Rights Commission) with responsibility for investigating malpractice and generally supporting whistle blowers; and (b) aligning whistle blower Employment Tribunal claims (e.g. for unfair dismissal) with discrimination claims whereby the burden of proof would be on the employer to show that their conduct was not to do with whistleblowing, rather than for the (ex)employee to prove that it was.
- In March 2019, the Lloyd’s insurance market commissioned the Banking Standards Board (BSB) to conduct an independent, market-wide culture survey on its behalf. This was the largest ever survey conducted by the insurance sector and was intended to help Lloyd’s understand the working cultures that exist across the Lloyd’s market, including standards of behaviour and conduct, and to inform further action.
- The survey came out in September 2019 and reported that nearly 500 people working in the insurance market have either suffered or observed sexual harassment in the past 12 months. John Neal, the Chief Executive of Lloyd’s, has vowed to stamp out the problems within three to five years and said he would “be very disappointed if we didn’t make significant progress in the next 12 months” (BBC report). In response to the report, Lloyd’s has set out further measures to tackle the problems. These include a “gender balance plan” setting clear, measurable targets and new “standards of business conduct”. Lloyd’s has already threatened lifetime bans for individuals found guilty of improper behaviour, and fines or bans for the firms that employ them.
These are just a few of the initiatives which are taking place. It is clear that there is a desire to improve the business culture. However only time will tell as to whether they lead to meaningful change or whether power and the quest for profit will trump ethical principles.
Click here to our video and FAQs on the extension on the SMCR on 9 December 2019
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Adrian Crawford
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