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Non-financial misconduct - FCA responds to the Treasury Select Committee, but questions remain

The FCA has written to the Treasury Select Committee explaining its supervision and investigation of Odey Asset Management and Crispin Odey, and providing information on the FCA's wider approach to non-financial misconduct ("NFM"). 

The exchange followed an article published in the Financial Times on 8 June regarding allegations from 13 women who claim to have been sexually harassed by Crispin Odey whilst working at Odey Asset Management. While the FCA addresses the Select Committee's questions, its responses prompt more questions than answers about the FCA's approach to NFM and the scope of its regulatory powers in an environment where civil, criminal and public interest oversight may collide. 

Discussion of the FCA's role in responding to NFM in regulated firms began in 2018, when Megan Butler, then the FCA Executive Director of Supervision, stated in a letter to Maria Miller (MP and Chair of the House of Commons Women and Equalities Committee), that the FCA viewed sexual harassment as misconduct that falls within the scope of the regulatory framework. The letter also noted that a working environment in which sexual harassment is tolerated is generally not one that encourages people to speak up or to challenge decisions, and identified tolerance of this sort of misconduct as a clear driver of poor culture. 

The 2021 FCA discussion paper on diversity and inclusion in the financial sector continued the debate. This explored whether adverse findings in relation to individuals' conduct with respect to diversity and inclusion issues could affect fitness and propriety assessments. It also indicated that there was scope to develop guidance about how evidence of sexual harassment, bullying and discrimination on the basis of someone's protected (or otherwise) characteristics might itself breach the Conduct Rules, and how a failure to take reasonable steps to address these kinds of behaviour could result in a similar finding. 

The limitations of the FCA's reach here were exposed in the Upper Tribunal's decision in Frensham v FCA. This held that although a finding that an individual has committed NFM might cast doubt on their reputation or integrity, it will not necessarily constitute behaviour that specifically challenges regulator's standards and statutory objectives. There are clear tensions between regulatory intention, the expectations of Parliament and public opinion on the one hand, and the limits of the FCA's powers on the other.

The FCA's letter seeks to set its ongoing investigation into Mr Odey and his firm in the context of these competing factors. Particular points of interest include the following: 

  • The FCA is clear that both individual conduct and corporate culture play significant roles in the risk a firm and its staff pose to the FCA's objectives. However, its ability to act is limited to furthering one of its statutory objectives: the protection of consumers; the integrity of the market; and the promotion of competition in the interests of consumers. If there is no clear link between NFM and the FCA's failure to deliver one of its statutory objectives, that could be the end of the FCA's role here.
  • Frensham v FCA demonstrates the challenge the FCA may face in seeking to ban individuals on the basis of sexual misconduct alone, even when criminal convictions have been secured. However, the FCA maintains that this misconduct can, of itself, create a sufficient risk to its objectives such that it should result in a prohibition order and states it will continues to pursue cases on that basis.
  • Ambiguities about this approach are thrown into sharp relief by the FCA's own responses in relation to the Crispin Odey and Odey Asset Management case, with the extended investigation timeline stretching back to mid-2021 and no conclusion yet reached (and Mr Odey retaining his position as a certified individual until June of this year).
  • NFM may often involve offences for other authorities to investigate, such as the police. An FCA investigation is not an alternative to criminal prosecution, internal disciplinary processes or proceedings through the Employment Tribunal. In an apparent reversal of the approach set out by Megan Butler back in 2018, there is an implied distancing from expectation that the FCA will police NFM on a more involved level. While to date the FCA has prohibited seven individuals for non-financial misconduct, all but one case involved a criminal conviction or a caution. A prohibition where criminality attaches to misconduct can be more easily (although not exclusively) linked to the furtherance of FCA objectives on the ground that this threatens market integrity. Cases with no clear criminal element may prove harder to conclude with a ban.
  • Positioning NFM as a culture issue doesn't make it clear where responsibility for oversight sits, given the FCA's drive to make firms promote inclusive, psychologically safe and purposeful environments for the benefit of consumers, employees and the markets. The FCA explains that, while NFM may be an important factor for when considering fitness and propriety, a level of voluntary disclosure is required on the part of individuals and firms. This suggests a reliance on self-policing by firms rather than the FCA exercising formal powers.
  • The FCA also notes that Parliament may choose to legislate if it wishes to specify that certain offences should lead to an automatic prohibition from a regulated sector, indicating the limitations of the regulator's current role in the face of political and public pressures to take further action. It will be interesting to see whether this is a line it continues to pursue.

The FCA  intends to provide further guidance, including how NFM should be considered within its rules, later in 2023. Given the issues raised by this latest development, it is clear that there is still plenty to be determined. 

"An assessment that leads us to believe an individual is not fit and proper may result in us making a prohibition order banning them from performing regulated activity. We can exercise this power where we consider that it is appropriate to achieve or advance one or more of our statutory objectives, including protecting consumers and protecting and enhancing the integrity of the UK financial system. The purpose of a prohibition order is protective and not punitive, and the central question to be considered is whether the individual is fit and proper to perform specified functions in the future on the basis of their honesty, integrity and reputation; competence and capability; and financial soundness"


misconduct, fca, nonfinancialmisconduct, investigations, frensham