Tackling sexism in the City: the role of the regulators
8 February 2024
The Treasury Committee has published its most recent oral evidence session from its “Sexism in the City” Inquiry (the Inquiry) (held on 17 January 2024), where key representatives from the Financial Conduct Authority (FCA) and Prudential Regulation Authority were interviewed. The Inquiry was set up last year after a spate of sexual harassment allegations were made by women in the sector. The purpose of the Inquiry was to examine whether barriers still existed for women and determine if any meaningful progress had been made since its last investigation in 2018.
About 40 women from 30 financial services companies met with the Treasury Select Committee to share their personal experiences of sexism and misogyny anonymously last November. Most gave evidence that they did not report sexual harassment or misconduct because they feared they would have to move teams or lose their jobs.
While the Inquiry is focussed on the barriers faced by women in financial services, the oral evidence session gave some helpful insight into the regulators’ priorities following the publishing of consultations on diversity and inclusion in the financial sector in September 2023. One of the key issues that emerged from the oral evidence session was the regulators’ approach to whistleblowers and non-disclosure agreements. We take a further look at these issues below.
Whistleblowing; maintaining anonymity and the impact on prohibition powers
Representatives of the Treasury Committee expressed their concerns that victims of harassment or abuse within financial services firms rarely report or whistleblow in relation to their experiences, despite there being widespread acknowledgement of the behaviours being carried on within a particular firm. The Treasury Committee noted that such victims might be concerned about losing their careers, or not being able to work within the industry again.
Most women interviewed as part of the Inquiry reported that for most allegations of sexual misconduct, little or no action was taken against the perpetrator who was often able to continue with their career. They also felt that there had been a shift since 2018 from harassment and “banter” that had been office based, to harassment on work trips, conferences and business events or via social media.
The use of anonymous reporting was explored, but it was recognised that it has limits. Nikhil Rathi (Chief Executive, FCA) explained that if the FCA is to use their prohibition powers in relation to an individual, they are “ending their livelihood” and that individual has the right to know the evidence upon which the FCA is basing the decision. He reiterated that it could be “very hard” to pursue matters through to enforcement action when accused individuals “strenuously deny” the allegations involved and individuals wanted to maintain their anonymity. Nevertheless, the FCA encouraged people to report to them on any matters of concern relating to non-financial misconduct. If a pattern were to emerge around an individual’s behaviour, it may give the FCA ability to engage their supervisory powers in relation to a firm’s systems and controls.
The relationship between non-disclosure agreements (NDAs) and whistleblowing
The Treasury Committee raised concerns around NDAs being used as a tool to allow perpetrators to remain in post, while the victims move on.
The FCA’s rules specifically prohibit the inclusion of terms in agreements that prevent someone from blowing the whistle or making a protected disclosure. While using an NDA is acceptable to keep confidential the commercial terms of a settlement, it cannot be used to prevent somebody from raising or articulating concerns of bullying, harassment, sexual misconduct or non-financial misconduct.
During the oral evidence session, the FCA announced it was conducting a survey of wholesale banks and insurers to look at statistics around non-financial misconduct cases, methods of detection and methods of resolution (which may include the entering into of NDAs). Mr Rathi also confirmed that the FCA could see merit in introducing a requirement as part of supervisory data collection, for firms to disclose whether an NDA had been used in resolving a case of non-financial misconduct.
Proposals to improve matters
The Treasury Committee then questioned whether the regulators’ recent diversity and inclusion papers would “root out the bad apples” within the industry “once and for all”. Whatever the outcome, it is clear that non-financial misconduct within the financial services sector is an incredibly topical issue both politically and from the perspective of the financial regulators. The Treasury Committee voiced their frustration throughout the oral evidence session that little seemed to have changed over the past five years for women working in the financial services sector. It will be interesting to see the impact of the diversity and inclusion proposals when the Government reexamines this subject in future inquiries.
One thing that is clear however, both from the evidence provided in the Inquiry and from the recent consultation papers is that the FCA wants greater powers to ban individuals who commit certain misconduct in their private lives. Mr Rathi pointed out in his evidence that the FCA’s powers are limited at the moment and made the point that in a previous case the FCA was prevented by the Courts from banning an individual who was found guilty by a criminal court of child grooming because the offence was not sufficiently connected to his work in financial services. Mr Rathi said that he wanted to see a set list of non-financial offences that would automatically disqualify an individual from working in the City – but that this would require Parliament to introduce legislation. New proposals put forward by the FCA aim to address this by making it very clear that misconduct in an individual’s private life might mean they are no longer considered “fit and proper” to perform their role. Other recommendations made by those in attendance also included that there should be a credible threat of fines and penalties for those committing or perpetuating sexual misconduct.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at February 2024.