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Commercial Question

Sexual harassment in the workplace – a regulatory perspective

updated on 15 January 2019


#MeToo in the financial services sector – what can employers do to eradicate sexual misconduct in the workplace and ensure they remain compliant with their regulator?


The #MeToo movement has catalysed an influx of claims that women are routinely subjected to sexual harassment at work. However, a recent report on sexual harassment in the British workplace by ACAS revealed that only one in four workers agree that international media coverage has helped to improve their workplace culture.

The House of Commons Women and Equalities Committee has called for regulators to take a more active role in eradicating sexual harassment in the firms that they regulate. The Financial Conduct Authority (FCA), conduct regulator for 58,000 financial services firms and financial markets in the UK, has identified sexual misconduct as a serious concern.

While the press has focused on individual high-profile scandals, employers that are regulated need to be aware of the effect that such behaviour has on their business. Employers need to ensure that adequate policies are in place and investigations are conducted thoroughly to eradicate this kind of behaviour and remain compliant with regulations.

Sexual harassment

Sexual harassment is defined under section 26 of the Equality Act 2010 as "unwanted conduct of a sexual nature which has the purpose or effect of violating someone's dignity, or creating an intimidating, hostile, degrading, humiliating or offensive environment for them." This covers a variety of behaviour with one common focus; the impact it has on the victim.

The Women and Equalities Committee

In July 2018, following its report on sexual harassment at work, the House of Commons Women and Equalities Committee wrote to 10 regulatory and inspection bodies, asking them to explain what they were doing to eradicate sexual harassment in the workplace. The FCA has published guidance on the steps that firms they regulate should take to tackle this. The guidance places responsibility into the hands of senior management to prevent and take action against sexual harassment of their employees.

The FCA's approach

The FCA and PRA Senior Managers Certification Regime (SMCR) was introduced by the regulators in March 2016 to improve senior staff accountability in banks. The SMCR is being extended to apply to include all financial services providers by December 2019. The SMCR requires the firms it regulates to ensure that their employees are "fit and proper" to do their roles. 

In her letter of 28 September 2018, in response to the Women and Equalities Committee report, Megan Butler, executive director of supervision at the FCA confirmed that sexual misconduct is under the FCA's regulatory ambit and it should be taken into account by firms when considering an employee's fitness and proprietary. Butler said that "the FCA would see a culture where sexual harassment is tolerated as being indicative of an overall culture which does not allow for decisions to be challenged and would fall below the standard the FCA expect". 

The FCA's guidance requires a firm to maintain an open and co-operative relationship with the regulator and to disclose to them anything relating to the firm of which they would reasonably expect to be notified. The guidance shows that the FCA expects firms to inform them promptly of any potentially serious misconduct involving their employees. 

Steps that firms should take

Openness, honesty and integrity are central to the FCA's guidance. The ACAS report found that 46% of those polled believe that “making changes to the wider culture of the company” would be effective in preventing sexual harassment. As such, firms should adopt a zero-tolerance approach to sexual harassment. To remain compliant, policies dealing with this should describe sexual harassment clearly, embody the firm's total prohibition of it and be applied effectively. 

Firms should ensure that they have a system in place to deal with any complaint and follow this consistently with all employees across the company. This approach will ensure that any systemic issues are stamped out and reoccurrences are prevented. 

Most importantly, financial services firms that are regulated must consider reporting any complaint to the FCA. They have a duty to report; a failure to do so or reporting late may lead to disciplinary action. 

Elinor Hughes is a trainee solicitor at DWF.