The BEAR accountability obligations of ADI’s and individual accountable persons include conducting business with honesty and integrity and to prevent matters from arising that would adversely affect the ADI’s prudential standing or prudential reputation.
The UK Financial Conduct Authority which administers the UK’s Senior Managers and Certification Regime (SMCR) (on which BEAR is based) has made it clear in a letter to the House of Commons Women and Equalities Committee that it views sexual harassment as misconduct which falls within the scope of its regulatory framework.
Under BEAR the taking of reasonable steps in relation to a matter includes having:
(a) appropriate governance, control and risk management in relation to that matter; and
(b) safeguards against inappropriate delegations of responsibility in relation to that matter; and
(c) appropriate procedures for identifying and remediating problems that arise or may arise in relation to that matter.
Could the scope of BEAR extend to non-financial workplace misconduct?
The Executive Director Supervision – Investment, Wholesale and Specialists Division of the FCA said:
Culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history, and we expect firms to foster healthy cultures which support the spirit of regulation in preventing harm to consumers and markets. A culture where sexual harassment is tolerated is not one which would encourage people to speak up and be heard, or to challenge decisions. Tolerance of this sort of misconduct would be a clear example of a driver of. poor culture. It would be an obstacle to creating an environment where the best talent is retained, the best business choices are made and the best risk decisions are taken.
The FCA said it takes a person’s ‘non-financial’ conduct into account in determining whether they are fit and proper and also requires firms to provide regulatory references in respect of their certified staff, which include relevant circumstances behind their departure.
Firms must inform the FCA promptly of potentially serious misconduct involving their employees, including criminal convictions and other sanctions, upheld complaints, and disciplinary proceedings.
The FCA said sexual harassment and other forms of non-financial misconduct can amount to a breach of its Conduct Rules, which include the requirement to act with integrity, and the SMCR imposes requirements on firms to notify it of Conduct Rule breaches – and in particular the need to do so within 7 days where they involve an organisation’s most senior staff.
It will be interesting to see how APRA develops its BEAR supervision and enforcement.
