In a consultation paper to be published this week, the Financial Conduct Authority (FCA) will propose tougher rules against perpetrators and companies that fail to punish abusive behaviour at work.
The changes will include new guidance on “serious instances of harassment and bullying” and how “non-financial misconduct” forms part of the regulator’s “fit and proper” test for financial services employees.
Nikhil Rathi, chief executive of the FCA, told The Telegraph: “Financial services workplaces need to be safe places for women.
“Companies that do not have an environment where serious issues like that are dealt with and addressed are unlikely to be companies that have an environment which is healthy from a risk management perspective. We want to make sure that we are proactive around that.”
He added that the rule changes will provide “clarity” around how City workers can be struck off for failing to meet its “fit and proper” test for non-financial misconduct offences.
The watchdog will also seek to mandate that the companies it regulates recognise a “lack of diversity and inclusion” as a “non-financial risk”.
It comes after Mr Odey, the founder of one of London’s best-known hedge funds, was removed from the firm following allegations that he sexually harassed and assaulted female co-workers over a 25-year period.
Hedge fund tycoon Crispin Odey was removed from his firm after being accused of sexually harassing and assaulting co-workers - Julian Simmonds
The scandal prompted questions about the FCA’s oversight of Odey Asset Management, which was under investigation by the regulator for two years prior to the new misconduct claims.
However, during that period the regulator made no official statements about its inquiries.
The FCA’s crackdown on workplace misconduct comes as Rathi attempts to put the City’s main regulator back on the front foot after a summer that was dominated by a debanking scandal and concerns that lenders were failing to pass on interest rate rises to savers.
The consultation will include guidance on other environmental, social and governance (ESG) issues, namely diversity and inclusion in the Square Mile.
While the regulator has been keen to promote ESG, Mr Rathi said that one area of concern for him is how ESG investing is affecting the defence industry.
Mr Rathi said: “There’s been some conversations over the last couple of months about defence companies and their access to services. From a personal perspective, I grew up in Barrow-in-Furness, I grew up in a town whose main employer was a major defence company.
“So [I] fully understand just how important the effective operation of those companies is to the security of the country and also to our industrial heartland.
“Ultimately, the choice around banking services for them and other businesses will be something for the Government to consider.”
Mr Rathi said that Downing Street’s decision to water down its green policies would not alter the FCA’s approach to net zero - Chris J Ratcliffe/Shutterstock
As of last year, the watchdog has required listed companies to publish climate-related disclosures as part of Britain’s commitment to hit net zero carbon emissions by 2050 on a “comply or explain” basis.
Mr Rathi said the FCA’s focus is on developing and implementing international standards on sustainability and the Government has been supportive of this work.
He added: “The net zero transition is an area where we have vast expertise in terms of insurance, financial technology and in the banking system.
“In our remit letter, which is issued to us by the Chancellor, we have an obligation to have regard to the Government’s policies in this area.
“So it’s within that framework that we work incredibly hard internationally to develop international standards that we will then look to implement here in the UK.”
The watchdog’s “comply or explain” regime is one area that has recently come under fire for weighing down businesses, with City heavyweights complaining that it has become too rigid and is damaging London’s competitiveness as a global financial centre.
There are growing concerns that the City is losing its allure as a leading global financial hub, with a string of companies moving their stock market listings to the US in recent months.
However, Mr Rathi said he did not believe the Square Mile was in a state of perpetual decline.
He added: “I’m optimistic that we remain the largest financial centre in Europe, the largest centre for capital raising in Europe, the largest centre for the issuance of debt. We have to keep up with the times.”
He pointed to “very, very radical reforms” the FCA is consulting on regarding its listings regulations, which include scrapping the current premium and standard system and replacing it with a “single segment” regime with less onerous rules.
British microchip designer Arm is an example of a bumper listing that recently got away from London and the FCA - BRENDAN MCDERMID/REUTERS
Mr Rathi declined to say how close regulators and government officials came to convincing Arm to list in London, but added that no one rule change would have moved the dial.
He said: “We want to make sure we have a capital market that’s attractive to companies of all sizes, across all sectors. And though that’s what our reforms are aimed at… it’s unlikely that one rule or another is, in any individual case, going to make the difference. And it’s much more about the entire ecosystem.”
Mr Rathi also said the City needs to have “an open conversation about risk” and whether it wanted to accept a higher level of things “going wrong”.
He added: “There is a balance that you must strike alongside traditions in the UK around governance and risk. And we have had a really, really vigorous direct debate with some very forceful views expressed by different groups through this consultation.
“One of the choices ahead of us is if we allow more risk into the system, if we reduce some of the checks we do before a company lists and rely on disclosures afterwards, more things will go wrong.”
Revolut is fighting to salvage its application to City regulators to become a fully authorised lender in the UK. The company applied for the licence in January 2021 but has yet to receive approval.
Earlier this year, Revolut boss Nik Storonsky hit out against Britain’s ‘extremely bureaucratic regulator’ - Piaras Ó MÃdheach/Getty Images/Sportsfile
Asked about Mr Storonsky’s comments, Mr Rathi, said he could not comment on individual firms, but added: “I think you just look at our record in terms of fintechs and in terms of the number of banks that have been authorised.
“Of course in any individual application there will be specific things that will be talked about, but I think we have a very, very strong track record.”
In recent weeks, the FCA has found itself embroiled in a scandal around banks closing customer accounts because of their political views.
The issue emerged after Nigel Farage, the prominent Brexiteer, revealed that Coutts planned to close his accounts because his views did not align with the bank’s “values” and were at odds with its “position as an inclusive organisation”.
Last week, the FCA published the interim findings of its review into so-called “debanking” after Jeremy Hunt, the Chancellor, requested that the regulator look into the issue.
To the dismay of Mr Farage, Conservative MPs and some government ministers, the FCA said that it found “no evidence” that customers had been debanked for their political views but admitted that it did not examine Mr Farage’s case at Coutts.
The review asked banks to provide data about account closures but did not seek evidence from those who claim to have been debanked.
Mr Rathi defended the report, stressing that the watchdog has committed to conducting further work on the issue.
He said: “We’ve done what we said we would do, which was to produce an interim report. The Chancellor asked us to provide an interim update on the data by the middle of September.
“At the time, we set out our plans to do that. And we made clear this would be interim, we had five or six weeks to collect the data from the banks, and that there would be further work to do once we published it.
“To be clear, the rules are clear that a bank or building society should not be closing a personal customer’s bank account on grounds of lawfully expressed political views.”
Mr Rathi defended the FCA’s report into debanking after it was a branded a ‘whitewash’ - Eddie Mulholland
The FCA boss also says that “obviously, there have been problems with what happened at Coutts” in reference to the botched closure of Farage’s accounts.
The debanking scandal and Coutts’ report on Mr Farage triggered wider questions about the significance given to diversity and inclusion initiatives in the City.
The promotion of diversity and inclusion has been seen as a key objective for the FCA in recent years, with the regulator introducing new targets for the representation of women and ethnic minorities on company boards and executive management teams.
Mr Rathi said: “I think having a financial services industry… that is genuinely open to people of all backgrounds, of all characteristics, who are able to progress, I think that will be very powerful for the financial service industry’s competitiveness.”
In fact, the consultation that the FCA will launch this week with the Bank of England’s Prudential Regulation Authority (PRA) will go further on diversity and inclusion, setting out new “minimum standards” that regulated companies must meet.
The proposals will mandate larger companies to collect, report and disclose diversity and inclusion data; establish and implement a diversity and inclusion strategy; set targets to address under-representation; and recognise a lack of diversity and inclusion as a non-financial risk.
Questions have also been raised about the FCA’s ties to controversial charity Stonewall, which has previously come under fire over its trans rights guidance. Sheldon Mills, a senior executive at the watchdog, previously served as chairman of Stonewall’s board of trustees.
Asked if the FCA has become too close to Stonewall, Mr Rathi said: “No, I don’t think so. Those decisions were all made by our HR team through the appropriate governance channels.
“And we will always look to make sure we do what’s right for our colleagues and make sure we have a diverse and inclusive workforce so that we can deliver our objectives as effectively as we can. I’m really proud of the really diverse team we have here at the FCA both at the senior level and all the way through the organisation.”
Now more than half-way through his five-year term at the City watchdog, Mr Rathi said he has turned the FCA into a more “proactive regulator” by “using data more effectively”.
He added that through “significant market events” – Covid, Russia’s invasion of Ukraine and the Tory leadership merry-go-round – the FCA has internally undertaken “very deep and broad reforms”, especially around pay, which resulted in a small number of staff going on strike last year.
He refused to be drawn on his plans once his term came to an end. Andrew Bailey, his predecessor at the FCA, went on to become Governor of the Bank of England.
Asked if it is frustrating that the FCA seemingly gets criticised from all angles and frequently appears to be caught between a rock and a hard place, the 44-year-old father of three, said: “The FCA has got a really important role and we’re balancing some very challenging considerations. We have some very significant powers.
“So it’s entirely appropriate that we’re scrutinised and challenged. And we’re dealing with issues that are very impactful for individual consumers and firms and businesses.”
