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The Financial Conduct Authority (FCA) recently prohibited three individuals from working in financial services, ruling that they were not “fit and proper”, the test used by the FCA as a benchmark to assess a person’s suitability to perform a controlled or senior management function. 

Each of the individuals had been convicted of indictable non-financial offences. The offences in question are undoubtedly extremely serious by any measure and each are very different. 

The first case involves child sexual abuse imagery and extreme pornography offences. Russell Jameson pleaded guilty to a range of non-contact sexual offences including making, possessing and distributing abusive images of children, possessing extreme pornography contrary to the Criminal Justice and Immigration Act 2008 and publishing obscene material. His conduct included superimposing the faces of individuals known to him onto pornographic material and using software to try and conceal his activities before he was arrested in August 2017.

The second case involves an adult related sexual offence. Mark Hornsey was convicted of one count of voyeurism when he filmed his tenant having a shower without their consent, for his own sexual gratification. In the sentencing remarks from the criminal court, the judge said that Mr Hornsey had carried out “substantial and significant” planning in order to commit the offence.

The third case involves sexual assault, harassment and domestic abuse. Frank Cochran was convicted of sexual assault, putting a person in fear of violence contrary to section 4(1) of the Protection from Harassment Act 1997 and engaging in controlling, coercive behaviour. In sentencing in the criminal court, the judge commented that the offending involved a “breach of trust” and an “[a]buse of power”.

In each case the FCA took into account a number of factors including:

  • the seriousness of the offence and the surrounding circumstances;
  • the relevance of the offence to the individual’s role;
  • the individual’s explanation and passage of time;
  • evidence of rehabilitation; and
  • the severity of the risk the individual posed to consumers and to confidence in the financial system.

the necessary integrity and reputation to work in the regulated financial services sector.

The Executive Director of the FCA commenting on the cases said:
“The FCA expects high standards of character, probity and fitness and properness from those who operate in the financial services industry and will take action to ensure these standards are maintained.”

The regulatory regime

Within the financial services sector, under the Senior Managers and Certification Regime (“SMCR”) regulated firms are required each year to certify employees as being “fit and proper” to perform specific roles. The FCA retains a role in giving approval for senior managers (carrying out the most senior functions in firms) to carry out their role, but in large part it is for firms to assess whether its employees are “fit and proper”. The FCA has powers of enforcement against individuals who cease to be fit and proper, but to date these powers have been exercised only rarely in relation to “non-financial” misconduct, such as the cases outlined above.

As discussed in our previous blog, the main assessment criteria in forming a view on fitness and propriety are:

  • Honesty, integrity and reputation;
  • competence and capability; and
  • financial soundness.

The SM&CR now applies to a wide range of financial services firms, including banks, firms regulated by both the FCA and Prudential Regulation Authority, and – with effect from 9 December 2019 – solo-regulated firms (ie those regulated by the FCA only). This expansion of the regime means that all solo-regulated firms need to have undertaken the first annual assessment of the fitness and propriety of their certified persons by 31 March 2021.

Commentary

It is now very clear that non-financial misconduct will be relevant to an assessment of fitness and propriety, including misconduct that may have taken place outside the workplace. The misconduct in the above cases is of the most serious kind, and certainly post #MeToo there is much more awareness of the impact of sexual misconduct. There is also increasing public awareness of other types offences such as extreme pornography (see for example The New York Times recent expose on the website pornhub) and, as a result of the Covid crisis, various agencies warning of an increase in online child sexual abuse (see for example Calls to online child sexual abuse watchdog up 45 per cent in September) and escalating rates of domestic abuse. (Note that in the third case of Mr Cochran one of the offences was engaging in coercive controlling behaviour. This is a relatively new offence which came into force in 2015 under the Serious Crime Act 2015 and is a form of domestic abuse). 

Given that the regulator has only taken enforcement action in the most serious cases, it can be difficult for firms to know how to deal with less serious non-financial misconduct (such as bullying or discrimination allegations) when carrying out its assessment process. There is a risk of inconsistency across the sector as firms take differing approaches. Executives across the sector need to be aware that their conduct will be scrutinised by firms in a manner that may not historically have been the case.   

Whilst the above decisions are of direct relevance to the financial services sector, it seems obvious that anyone engaging in and convicted for criminal sexual misconduct and abuse of power is at very high risk of being prohibited from working in most regulated sectors as engaging in this type of activity indicates the person poses a risk to others and is lacking in integrity and good character. 

Employers need to be increasingly aware of this type of misconduct notwithstanding that it can largely occur outside the workplace and be completely unrelated to the job or the business. Employers should ensure that their codes of conduct and policies refer to misconduct outside the workplace (as well as inside) and that the policies explicitly give employers the power to investigate potential misconduct occurring outside of work, given the potential impact to the employer of someone in the business engaging in inappropriate and potentially criminal conduct outside of work. Employers should also work to create environments where employees can seek support if they are either victims of sexual misconduct or domestic abuse or perpetrators who wish to voluntarily change their behaviour where that is possible.

Resources for employers in dealing with sexual misconduct and domestic abuse

In June 2020, we ran a three-part series on sexual misconduct and creating safer organisations aimed at employers and HR professionals. The videos from the series can be accessed by emailing Caroline Arnott

In September 2020 we published our ground breaking Guide for Employers on Domestic Abuse (see here), which gives advice on implementing a domestic abuse strategy and policy in the workplace, as well as explaining what domestic abuse and its impact on employees and on businesses. In November 2020, we wrote a piece for Personnel Today on How Should HR Handle a case of Domestic Abuse particularly focusing on dealing with perpetrators of domestic abuse.     

In December 2020, we ran a webinar with Mary Sharpe of The Reward Foundation on the issue of extreme pornography. Although focusing on the impact on young people, the interview with Mary Sharpe is an eye-opening insight into the porn industry and the impact of extreme porn on society. The webinar is also available by emailing Caroline Arnott.   

If you require further information about anything covered in this blog, please contact Eleanor Rowswell, Maria Strauss, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, January 2021

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