Sexual Harassment in Financial Services

The Worker Protection (Amendment of Equality Act 2010) Act 2023 has introduced the proactive duty on employers to take “reasonable steps” to prevent harassment of employees in the course of their employment. The Act focusses on an employer’s duty regarding the prevention of sexual harassment, but the Act also extends this to unwanted conduct in respect of the other protected characteristics under the Equality Act 2010 of age, disability, gender reassignment, race, religion or belief, and sexual orientation. 

This duty takes effect from October 2024 and a failure to comply with this duty could result in a 25% uplift in compensation payable in harassment claims. 

While employers will be relieved to see that some of the proposals in the Act’s early discussion stages have been softened – such as an expansion to employer liability for third-party harassment – employers should start giving thought to what adjustments need to be made to their policies and training schedules to ensure that they cover these additional protections. Liability can also arise through other channels where an employee is subject to harassment by a customer or supplier, such as negligence or constructive dismissal claims. It is therefore imperative to review commercial arrangements with third parties. 

How does this affect Financial Services?

In addition to the above changes, Parliament have appointed a Treasury Committee to examine the barriers faced by women in Financial Services (FS) and the progress being made in removing gender pay gaps. The MPs will explore what role firms, the Government and regulators should play in combatting sexual harassment and misogyny.  Following an earlier inquiry five years ago, the Committee is investigating whether enough work has been done to build more supportive workplace cultures, how harassment and misogyny can be addressed, and the role the Government and regulator should play in role modelling behaviours. 

The Committee’s previous 2018 inquiry called for firms to encourage the progression of women in finance by abolishing ‘alpha-male’ cultures, removing the stigma of flexible working with senior men leading by example, and encouraging firms to publish strategies for closing gender pay gaps. The MPs will evaluate the industry’s progress on implementing those recommendations. 

The FCA and Prudential Regulatory Authority (PRA) have proposed new measures to clamp down on harassment and bullying by boosting diversity and inclusion (D&I). These new measures will make it easier for staff members to speak out or challenge behaviour they see in the workplace. 

The regulators are also strengthening their expectations on how firms consider misconduct in fitness and propriety assessments within the industry. The FCA and PRA scrutinises whether a financial firm fosters a healthy culture where all employees can speak up and have systems in place to deal with concerns when they are raised. 

What are the Regulators planning?

The FCA and PRA previously published consultation papers setting out proposals to improve diversity and inclusion in the FS sector, making it clear that D&I is essential for a healthy firm culture. The FCA’s consultation paper sets out proposals to increase the pace of change on D&I in FS whilst the PRA’s paper sets out their proposed rules and expectations aimed at improving D&I outcomes in regulated firms.

Non-financial misconduct featured heavily in the consultation papers as it has a significant impact within the financial sector and it can erode trust, affect workplace culture and increase risk of legal claims.  Therefore, addressing these issues is not only a matter of ethics, but is also a business critical issue to address in order that financial institutions can thrive in a competitive and regulated environment.

The FCA are strengthening their fitness and propriety framework to assist in the prevention of non-financial misconduct. Bullying and harassment can lead to reluctance to speak up and raise concerns, which can ultimately develop into regulatory breaches and negative impacts on market integrity.

The FCA and PRA are expected to develop their final regulatory rules and requirements this year following the expiry of the consultation period at the end of 2023. The FCA and PRA propose to bring the final rules into force in 2025, giving the FS sector one year to implement the changes. It is therefore critical to stay informed of these developments to ensure compliance within the financial industry. A failure to do so may lead to serious regulatory consequences.

What does this mean for employers?

The emphasis for change in the FS sector is growing pace and the recent passing of the Act, which comes into force on 26 October 2024 reminds employers that they should not forget their obligations under current legislation to protect employees in the ever-changing landscape of employment law. This would involve having updated and robust policies and procedures to combat harassment and sexual harassment within the workplace, ensuring that such policies and procedures are communicated to the workforce. 

It seems clear that the regulators are now emphasising that it needs to be easier for employees to speak out or challenge negative behaviours (whether financial or non-financial) they see at their firms and that the regulators are expecting employers to take effective action to investigate address the issues raised. 

If you would like a specific review of your current workplace policies and measures to deal with harassment within the workplace, or would like further advice as to your responsibilities, please contact us to speak to a member of our Employment Team.

Alex Harper
Senior Solicitor, Employment
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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