In a ruling earlier this month, the U.K. Financial Conduct Authority (FCA) withdrew its authorization for three individuals and barred each from ever again holding an authorized position within the financial services industry. None of the three men broke a specific regulatory rule or undertook any form of financial misconduct. In each instance, the behavior that led to the withdrawal of the regulatory approval took place outside the office, and none of the victims were work colleagues.
Ever since the advent of the global financial crisis in 2008, regulators have wrestled with the conduct and culture of firms, as well as individuals. In January, FCA Executive Jonathan Davidson sent a “Dear CEO” letter to all regulated firms, in which he stated:
“Poor culture in financial services can lead directly to harm to consumers, market participants, employees and markets. It was a key root cause of recent major conduct failings within the industry. How a firm handles non-financial misconduct throughout the organization, including discrimination, harassment, victimization and bullying, is indicative of a firm’s culture.”
Strong words, and now actions to match.
The Nov. 5 ruling by the FCA is part of a broad push by regulators overall to correlate the connections between bullying culture, tolerance of harassment, and intimidation. Some of the biggest financial frauds and scandals had bullies at the helm—bullies who did not tolerate challenge and dismissed those who spoke out against their ruthless and, oftentimes, criminal conduct.
Then there were the CEOs who took their banks to the brink and beyond leading up to the financial crisis. Many were dictators, some were bullies, and far too many attacked those who challenged them.
These kinds of actions are matters regulators want to be informed of. The FCA now wants to know if members of staff holding positions approved by the organization have been the subject of discipline proceedings for such conduct. Consequently, disciplinary actions may result in mediation, a verbal warning, or a written warning that could potentially have a long-lasting, detrimental impact upon an individual’s career within the financial services industry.
All of this should cause many of us to pause and think about the adequacies of policies, procedures, and processes that relate to allegations of bullying, harassment, and discrimination. Perhaps more so, we need to consider the fairness, independence, and structure of disciplinary processes, which ultimately could be very damaging to individuals. Those senior members of staff who are appointed to investigate such allegations, interview all parties, adjudicate, and recommend a sanction are being asked to make very important, high-impact judgments. So, who trains these people; how do they maintain independence; how do they undertake interviews; and ultimately, how do they make their decisions?
Firms need to demonstrate a consistent process to identify, report, investigate, and adjudicate instances and/or allegations of bullying, harassment, intimidation, and discrimination. Logically, the provision of training in all areas is key to securing the right outcomes and justifying the same.
Conduct, culture, and behavior determine how a firm operates, the risk decisions made, and the outcomes of such decisions. This applies equally to investigations and the application of disciplinary processes. Remember: The regulators are watching.
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