Recent events highlight FCA’s continued focus on non-financial misconduct
In the weeks that have followed allegations of misconduct against the founder of Odey Asset Management coming to light, there has been increased commentary on the topic of “non-financial misconduct” and questions around the FCA’s interest and powers in this area.
Most recently, the FCA’s response to the Treasury Select Committee re-emphasises its commitment to driving positive culture and tackling issues of non-financial conduct.
In the letter, FCA state non-financial misconduct is an important factor when assessing whether a person who is submitted for approval meets the fit and proper test. FCA will assess information relating to any criminal or civil proceedings, disciplinary investigations or dismissals, resignations or suspensions. FCA also expect firms to take action, stating that they expect allegations or evidence of non-financial misconduct to be taken seriously by firms and handled appropriately through internal procedures. Importantly, FCA can investigate and act against authorised firms that fail in this regard for inadequate systems and controls.
FCA’s comments are an important reminder that firms should:
Have effective internal procedures (and governance arrangements) to handle allegations or evidence of non-financial misconduct.
Ensure non-financial misconduct is a factor considered when carrying out fit and proper tests on staff.
Interestingly, FCA stress that it can only take non-financial misconduct into account insofar as that would achieve or further one of its statutory objectives. And even then it can be subject to challenge, as demonstrated in the case of Jon Frensham v FCA where the Upper Tribunal found a conviction relating to child sexual grooming was insufficient alone to justify a prohibition by the FCA. The prohibition was upheld on other grounds but it demonstrates the kind of challenge FCA may face when banning people relating to sexual misconduct alone. FCA go on to say that it recognises that “Parliament may choose to legislate if it wished to specify that certain offences should lead to an automatic prohibition from a regulated sector”, potentially opening the door for change in this area.
But for now, keep an eye out for the guidance FCA plan to issue later this on how non-financial misconduct should be considered within current FCA rules.
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