Non-financial misconduct: Will the FCA take a leaf out of the legal regulator’s book?
In the financial world, all eyes are on the FCA’s new non-financial misconduct rules. These rules are sounding similar to the legal regulator’s rules—which are known for their strict guidelines on out-of-work behaviour. City PM has a closer look at what this may look like.
The legal sector’s regulator, known as the Solicitors Regulation Authority (SRA), is notorious for how highly it upholds lawyers’ conduct – even in their personal lives.
If you want to be a lawyer in this country, you must be regulated by the SRA. As a result, you must follow the profession’s code of conduct. The legal regulator is also very clear that conduct does not need to occur in a workplace to relate to their legal practice.
There have been several headlines over the years of lawyers being fined, reprimanded and even struck off for offences outside their work, including drink driving and tweeting.
Just earlier this year, a lawyer at City-based Farrer & Co was fined £10,000 by the SRA for drink driving, after he lost control of his car. Previously, well-known partner Boris Bronfentrinker of Wilkie Farr, was rebuked in 2022 after he was convicted of driving his car at a person in 2019 with the intention of scaring them.
The regulator is even becoming more willing to increase penalties in other areas outside the workplace, including striking off a lawyer who made antisemitic posts on social media over the War in Gaza. He was also ordered to pay over £40,000 in a fine.
The legal regular is also especially strict on sexual offences; as Martin Pratt, a partner at RWK Goodman, explained, “the SRA has long sought to crack down on perceived sexual misconduct.” There are many headlines of lawyers being suspended and fined for sexual offences – inside and outside – of work.
In December, a lawyer was suspended for 12 months after being found to have inappropriately touched a 21-year-old paralegal. While last October, a former senior associate at Herbert Smith Freehills was struck off after being convicted of numerous child-related sexual offences.
The City watchdog, the Financial Conduct Authority (FCA), is currently prepping an update on its code of conduct for staff sourcebook (COCON) in respect of non-financial misconduct. Lynn Dunne, partner at Ashurst said that “the SRA have been ahead of the FCA in relation to non-financial misconduct”.
The copycats
So, will the FCA copy the SRA? Andrew Czechowski, an associate in the employment group at Simkins, stated that: “With the increased scrutiny on non-financial misconduct of certified employees in the finance sector, the FCA is moving towards a regulatory model similar to the one that governs solicitors.”
He pointed out that this regime has seen solicitors sanctioned and/or struck off for a range of non-professional activities. Czechowski noted that “certified finance employees may in the future find themselves subject to similar sanctions by the FCA.”
Jeremy Irving, partner at Browne Jacobson stated that the FCA will copy the SRA “as far as it can”. He pointed out that there is a significant overlap between SRA’s principles and FCA’s COCON on non-financial misconduct issues such as honesty, integrity, and dealing with clients.
Czechowski explained that the FCA will rely on regulated firms to self-report non-financial misconduct against its staff. He outlined that “whistleblowing will be an important means by which the FCA becomes alerted to individuals or events involving non-financial misconduct.”
He did point out that a more informal way for the FCA to crack down on non-financial misconduct is by monitoring social media, particularly those platforms that are predicated on sharing social activity outside of the workplace.
It was reported last month that staff at financial institutions may be asked to disclose all social media profiles so they can be monitored for behaviour as the regulator focuses on non-financial misconduct increases.
Criticism the FCA faces
The FCA has only recently introduced guidance on non-financial misconduct, and unlike the SRA, its language is somewhat ambiguous. Monica Kurnatowska, partner at Baker McKenzie stated: “The wording the FCA are adopting is not the same as the SRA but I do think it’s predominantly trying to achieve the same thing.”
Kurnatowska thinks “it is introducing a degree of ambiguity, which is going to make it difficult for firms, potentially, to apply in practice.”
She detailed that the FCA discusses concepts like disgraceful or morally reprehensible conduct, which she noted is difficult to navigate.
“I do think it’s going to create some uncertainty to determine whether a person remains fit or unfit to carry out the regulated role,” she added.
Dunne also highlighted the clarity to the guidance the FCA put out recently, highlighting that: “tackling this issue head on is of real importance while enabling firms and individuals to understand the relevant parameters”.
“Whilst the intention is that the FCA will follow a similar path to the SRA, the outcome is reliant on how robust the FCA intends to be with taking enforcement action,” Czechowski concluded.