Who knew?
I’m going to admit a gaping lacuna in my knowledge, that in several decades reporting the City, I did not know the beaks had it in their grasp to boot someone out for non-financial misconduct.
They do and they have done.
The Financial Conduct Authority can excommunicate and fine those whose behaviour makes them not fit and proper to work in financial services.
In the past, the watchdog has focused on those found guilty of an offence by the criminal court. The latter hands out the sentence and the FCA follows up with its own. Because it’s been dealt with at effectively a higher, more public level there hasn’t been a great deal of attention to the authority sweeping up afterwards.
Its punishment is secondary. Increasingly though, it seems, the regulator is taking an interest in matters that have not been determined, may never be determined, by the courts.
It turns out that in 2021 the FCA opened an investigation into alleged sexual misconduct going back over almost two decades by Crispin Odey at his eponymous hedge fund. Odey disputes the claims.
The response of his lawyers then was to argue the FCA investigation was unlawful and that the watchdog had failed to demonstrate how allegations of sexual misconduct risked harming the integrity of financial markets, which the body has a duty to protect. They were acting for Odey in an individual capacity and not for his firm.
He threatened judicial review against the authority — in other words, taking them to court — for acting outside their statutory scope. The FCA then switched to examining corporate governance issues at his firm after he fired its executive committee.
The committee wanted to discipline Odey for breaking a “final written warning” prohibiting him from behaving inappropriately with female staff.
This was occurring under the radar, but it shows how easily the FCA can be tied up in knots — going after someone convicted by law is one thing, pursuing someone not even tried is quite another.
The watchdog’s thinking is that non-financial misconduct goes to the heart of a firm, to its culture, and often it is poor culture that lies behind major financial conduct failings. That’s understandable and laudable.
It ties in, too, with the FCA’s rightful, more recent desire to be increasingly prioritising ESG. The problem is one of application.
Cases where the FCA has acted once the courts have done their finest, include: a financial manager whose honesty and integrity were criticised by the Court of Appeal; the MD of an asset management firm who admitted knowingly evading his rail fare on numerous occasions; a financial adviser convicted of sexual grooming; three individuals convicted of serious sexual offences, including sexual assault and the making, possession and distribution of indecent images of children; a senior manager jailed for causing grievous bodily harm and being in possession of a machete. It’s impossible to argue with any of those.
The FCA applies five “individual conduct rules”: acting with integrity; acting with due skill, care and attention; being open and cooperative with regulators; paying due regard to customers’ interests and treating them fairly; and observing property standards of market conduct. Again, difficult to contest
What about though, a banker who takes drugs with their friends at a non-work dinner party. Or the financial adviser making a racist remark at a football match. How would the FCA treat instances like these?
The authority is hard-pressed as it is, in scrutinising and enforcing cases of financial misconduct. All the time it is grappling with the best lawyers who specialise in blocking and obstructing.
By widening its target beyond those already dealt with in the courts, the regulator is entering territory that is too vague, too broad.
The FCA’s sentiment is correct, but if it is going to go down this road it needs to provide greater clarity as to what qualifies as non-financial misconduct.
The wider remit also requires a major injection of resources. Regrettably, the FCA should pull back and let the police and courts do their work.
