The UK’s financial sector is undergoing significant cultural shifts driven by new regulatory duties and rules aimed at fostering a more inclusive and respectful workplace environment. These changes are particularly focused on addressing non-financial misconduct, such as sexual harassment, and promoting diversity and inclusion within the industry.
New duty to prevent sexual harassment
From 26 October 2024, a new proactive duty will be imposed on employers to take reasonable steps to prevent sexual harassment in the workplace. This duty is part of the Worker Protection (Amendment of Equality Act 2010) Act, which aims to shift the focus from redress to prevention and protection. Employers will need to undertake risk assessments and implement measures to prevent harassment, including by third parties such as clients and customers. Failure to comply could result in significant compensation uplifts in employment tribunal cases.
Regulatory focus on non-financial misconduct
The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have intensified their focus on non-financial misconduct, including bullying, harassment, and discrimination. This shift is part of a broader regulatory trend to integrate non-financial misconduct considerations into staff fitness and propriety assessments, Conduct Rules, and the suitability criteria for firms operating in the financial sector.
Key regulatory changes
Incorporation into fit and proper tests
Non-financial misconduct will be explicitly considered in the fit and proper tests under the Financial Services and Markets Act 2000. This aims to prevent individuals with a history of misconduct from moving between firms undetected.
Enhanced whistleblowing procedures
Firms are urged to improve their handling of non-financial misconduct allegations and adopt a zero-tolerance approach. The FCA has been collecting data on incidents of non-financial misconduct to inform its regulatory framework.
Diversity and inclusion strategies
Larger firms will be required to develop and publish diversity and inclusion strategies, set targets, and report on progress. This includes mandatory reporting on demographic characteristics such as age, gender, disability, ethnicity, religion, and sexual orientation.
Impact on workplace culture
The new regulatory focus and duties are expected to drive significant changes in workplace culture within the financial sector. Firms will need to reassess their current operations to ensure compliance with higher standards and foster an inclusive and positive workplace environment.
Recommendations for firms
Leadership and accountability
Ensure that the board and senior management are accountable for creating the right culture and handling allegations of misconduct effectively.
Appoint a senior manager as a workplace champion responsible for overseeing the organisational risk of sexual harassment and wider non-financial misconduct issues.
Communication and awareness
Communicate policies and training programmes effectively to all staff.
Promote a zero-tolerance culture regarding harassment and ensure that employees are aware of the reporting mechanisms available to them.
Regular reviews and audits
Regularly review policies and procedures to ensure they are up-to-date and effective.
Conduct audits to assess compliance with regulatory requirements and identify areas for improvement.
Additional considerations
Third-party harassment: Employers must also consider how to protect employees from harassment by third parties, such as clients and customers, and take reasonable steps to prevent such incidents.
Regulatory reporting obligations: Firms should be mindful of their regulatory reporting obligations and ensure that any incidents of non-financial misconduct are reported to the relevant authorities.
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