Responding To Allegations Of Non-Financial Misconduct: Getting It Right

• Law Firm: WilmerHale
• Subject Matter: Corporate/Commercial Law, Employment and HR, Criminal Law, Corporate and Company Law, White Collar Crime, Anti-Corruption & Fraud, Whistleblowing
• Author: Mr Chris Ladusans
• Published date: 24 May 2023

The UK's Confederation of British Industry (CBI), which provides a voice for UK corporates, is facing a crisis following recent serious and well-publicised allegations of sexual misconduct. At the time of writing, multiple high-profile UK corporates have severed ties with the CBI, while others have paused engagements pending the outcome of an internal investigation.

Unrelated, but in a similar vein, the UK's Deputy Prime Minister recently resigned following the publication of an external report by an independent lawyer that found he had acted in a way which was intimidating and had been unreasonably and persistently aggressive in meetings with civil servants.

These evolving situations serve as opportune reminders to corporates of the significant risks associated with non-financial misconduct and the vital role of putting in place a timely, coordinated and carefully thought through multi-disciplinary investigative response. This article highlights some of the key legal and practical matters for corporates to consider should such allegations arise within their organisation.

What conduct is captured?

Non-financial misconduct is an umbrella term that includes myriad inappropriate behaviours such as inappropriate sexual contact, bullying, harassment, discrimination, and inappropriate use of social media.

There has been increased regulatory focus on this issue in recent years. UK FCA-regulated firms are required to consider non-financial misconduct in two key respects. First, the FCA's Conduct Rules, applicable to nearly all staff, require employees to 'act with integrity' in the performance of their roles and responsibilities. Second, firms must certify annually that individuals holding a Senior Manager Function are 'fit and proper' to perform their role, an assessment which considers their honesty, integrity, and reputation inside and outside the workplace.

Non-financial misconduct is relevant to compliance with these regulatory standards and has resulted in a number of enforcement actions being taken by the FCA, most recently in the case of Ashkan Zahedian, a director of a consumer credit firm who was banned from working in financial services after a violent criminal conviction.¹ Similarly, as regards the London insurance market at Lloyd's of London, enforcement action has been undertaken against senior individuals for gross personal misconduct, as well as firms for systemic failures to address such conduct.

These issues can impact any business, however...