9. Non-Financial Misconduct
Whilst communicating regularly on non-financial misconduct as a topic, enforcement activity by the FCA has been low. However, a big question remains over when regulatory action is justified.
The Upper Tribunal’s decision in Frensham reinforced the FCA’s obligation to consider whether failings of personal integrity, particularly outside the workplace, also amount to failings of professional integrity which could harm market integrity and consumer protection. In this decision, the Upper Tribunal effectively reined in the FCA from making the assumption that non-work-related misconduct is relevant to an individual’s fitness and propriety to perform a regulated function.
The most recent decision by the FCA in Zahedian in November 2022 muddies the waters further in that the FCA prohibited Mr. Zahedian from working in financial services, having attacked a security guard at a bar with a machete,28 apparently not only on the basis of an assessment of Mr. Zahedian’s fitness and propriety but also on an assessment of his “character” (although “character” is not referenced in the FCA’s FIT Handbook).
What is clear is that the FCA is keen to put its stamp on this area. Further guidance is expected in 2023.
We also expect to see ongoing attention to improving workplace culture and outcomes on ongoing enforcement.29
While enforcement actions against individuals under the Senior Managers and Certification Regime (“SMCR”) are rare, recent FCA enforcement notices have criticised both Boards and senior managers who fail to meaningfully engage with business risks. Further, while HM Treasury may have announced a review of the SMCR as part of its deregulation package dubbed the ’Edinburgh Reforms’30 with a focus on its “effectiveness, scope and proportionality”, sweeping changes seem unlikely, particularly when prior FCA and PRA reviews concluded that the SMCR has been successful in helping ensure senior individuals take “greater responsibility for their actions”, driving up both standards of conduct and improving conduct within the financial services industry31