On 8 March 2024, the Treasury Committee published its final report into Sexism in the City.
The Committee noted that disappointingly little had changed since the Committee’s previous Inquiry in 2018 – firms were still treating diversity and inclusion as a ‘tick-box’ exercise rather than a core business priority, and there had only been a small reduction in the gender pay gap.
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The Committee also noted that neither the gender pay gap reporting requirements nor the Women in Finance Charter had brought about the extent of change that had been anticipated, other than increasing transparency.
The Committee’s headline recommendations outlined in the final report include:
- banning non-disclosure agreements (NDAs) in sexual harassment cases as these appeared to be silencing victims,
- banning prospective employers asking for salary history. Evidence from the United States has indicated that this minimises the risk perpetuating historic pay gaps; and
- reducing the gender pay gap reporting threshold from 250 employees to 50.
What are the FCA and PRA doing in this area?
In September 2023, the FCA and PRA, who regulate the financial services sector, published consultations proposing a new regulatory framework on diversity and inclusion which is due to come into force next year. Among other things, the new rules will require financial services firms over a certain size to collect and report on diversity data. Additionally, adverse findings relating to bullying, sexual harassment and discrimination will be directly linked to the ‘fit and proper’ test in their rules.
The Committee remained unconvinced that the regulators’ data reporting proposals would achieve a cultural change and has recommended that the regulators drop their plans for data reporting and target setting, and instead focus on ensuring that senior leadership take more responsibility for improving diversity and inclusion.
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By GlobalDataIn a statement, the FCA promised to consider these recommendations in the report carefully. However, the FCA has been committed to data-driven regulation for some years, and it would be surprising to see these proposals dropped, and the FCA may rely on its investigation into non-financial misconduct at wholesale firms to show that it is focusing on culture as well as data. In addition to this, a report by the Inclusion at Work Panel emphasised that better data and evidence can improve D&I strategies and interventions.
To continue to inform their ongoing work in this area, the FCA has been requesting data from firms. One example of this was in February 2024 the FCA published a statutory request for information to Lloyds Managing Agents and Intermediaries, asking for data relating to complaints of non-financial misconduct.
Implications and next steps
It is not enough for firms to take reactive steps once a report of bullying and/or discrimination has been made. Rather, as the Report makes clear, firms “need to embed a zero-tolerance culture towards harassment and bullying in the workplace”. In the specific case of sexual harassment, the legal risk for firms is compounded by the introduction of the Worker Protection (Amendment of Equality Act 2010) Act, which comes into force in October this year and will impose a proactive duty on employers to take “reasonable steps” to prevent sexual harassment of employees.
Furthermore, an outright ban of NDAs would indicate a significant departure from the status quo and, to some, would seem to cut across the commercial value for both parties in achieving a clean break following a dispute. In the meantime, financial services firms must adopt what is recognised as standard practice now, ensuring that they are making it clear to complainants that nothing in an NDA prevents them from making protected disclosures and/or reporting harassment to regulators, law enforcement bodies and cooperating with any related investigations.
Whilst we wait for the new rules and guidance to be implemented, firms should ensure they have appropriate processes in place to investigate non-financial misconduct robustly and to evaluate how it might impact an individual’s fitness and propriety in practice. Investigating non-financial misconduct may involve sensitive matters that are far more subjective and nuanced than when assessing regulatory breaches. Firms should prepare by giving consideration to whether their internal investigations are sufficient to carry out this type of analysis.
The new rules on non-financial misconduct will apply to all firms, regardless of size. As such, firms, including smaller firms who may not historically have offered employees formal training on non-financial misconduct, should emphasise that misconduct both within and outside of work can have an impact on the outcome of a fitness and propriety assessment.
Katy Ruddell is Senior Counsel at Farrer & Co
