New laws to raise the stakes on sexual harassment in financial services

The Financial Conduct Authority has shone a spotlight on non-financial misconduct within financial services, especially in relation to sexual harassment. Changes proposed under the Employment Rights Bill will mean this remains a priority for the sector.

Introduction

Employers in the financial services sector have had sexual harassment on their radars for some time, given the Financial Conduct Authority’s (FCA) continued focus on non-financial misconduct. Therefore, when the enhanced duty to prevent sexual harassment came into force on 26 October 2024, FCA-regulated businesses were generally better prepared to comply with it than employers in many other sectors. 

However, the further changes proposed by the Employment Rights Bill are likely to mean that firms’ work is not done yet. Continued compliance, if the duty to prevent sexual harassment is enhanced further as planned, especially where whistleblowing disclosures are made, will require re-examination of a firm’s culture at all levels of seniority as well as the policies and practices it has in place.

Regulator’s focus on non-financial misconduct

The FCA has been vocal in recent years about its heightened focus on non-financial misconduct. In 2024, the FCA contributed to the Treasury’s “Sexism in the City” inquiry, which reported that 45% of workers in financial services had experienced sexual harassment in the workplace. 

The FCA also conducted its own survey into culture and non-financial misconduct in financial services, which found that bullying, harassment and discrimination were the most recorded concerns in the three-year review period. Whistleblowing was the most commonly used way for such concerns to be reported to a firm.

Heightened sexual harassment protections under new legislation

The Employment Rights Bill was laid before Parliament in October 2024. The Bill proposes a raft of significant reforms to several areas of employment law, including harassment.

The new duty to prevent sexual harassment is due to be enhanced by the Bill. Specifically, an employer’s duty will be strengthened to require “all reasonable steps” (as opposed to the current standard of “reasonable steps”) to be taken to prevent sexual harassment. 

Such reasonable steps are likely to include conducting thorough risk assessments, providing appropriate training to staff and managers on workplace sexual harassment, having in place a robust anti-harassment policy and reporting mechanisms, conducting thorough and balanced investigations of complaints and making appropriate reflections on any harassment found to have taken place. While many of these elements are likely to be in place as a response to the existing duty, firms will be expected to bolster them once the enhanced duty is implemented. Where relevant, firms should also consider whether allegations of sexual misconduct or harassment affect any fitness and propriety assessments or regulatory references.

Under the Bill, employers will also become liable for any acts of harassment (on any basis, not simply sexual harassment) committed by third parties. There will be no need for the harassment to occur on multiple occasions – a single instance of harassment could be enough to form the basis of a claim.

The Bill also proposes to amend existing whistleblowing legislation to clarify that allegations that “sexual harassment has occurred, is occurring or is likely to occur” can qualify as a protected disclosure for whistleblowing purposes. 

This change does not remove the requirement for a disclosure to be made with a reasonable belief that it is in the public interest. Whistleblowers must also still disclose the information to the right recipient(s) (which will generally be the employer, but in financial services, could also be the FCA) in order to gain protection under employment law. However, it is possible that tribunals will be quicker to find a public interest element where the employer is well-known (such as a clearing bank or major insurer) or the alleged harassers are regulated persons.

This is in addition to the protection against victimisation under the Equality Act 2010 given to employees who make allegations of a breach of that Act (which includes allegations of sexual harassment). For protection to arise, such allegations must be made in good faith, but there is no need to show they were made in the public interest.

Enhanced accountability for non-financial misconduct in Financial Services

The “all reasonable steps” standard will require a robust approach to the prevention and handling of sexual harassment. Managers, and especially those with a Senior Management Function (SMFs), will need to have a good grasp of the firm’s responsibilities in this area and play an active role in ensuring compliance. 

Where staff are required to meet clients, brokers, investors or any other third parties – particularly where alcohol and late nights are involved – more vigilance will be necessary to ensure that they feel safe and are adequately protected. Staff should be reassured that they will be supported, not penalised, for raising concerns relating to clients’ behaviour.

The Bill’s designation of sexual harassment complaints as protected disclosures means that such allegations will also be considered reportable concerns by the FCA. Firms will need to consider whether their handling of any such reports is done in compliance with the FCA Handbook (particularly SYSC 18). SMFs will need to consider whether they need to make disclosures in line with their obligation under the Senior Manager Conduct Rules to disclose appropriately any information of which the FCA would reasonably expect notice.

The Handbook includes a requirement under SYSC 18.3.1R(2)(f)(ii) to report promptly to the FCA about any cases which the firm contested but lost in an employment tribunal, where the case concerned detriment or dismissal as a result of the worker making a protected disclosure. Following implementation of the Bill, this is likely to extend to cases where the whistleblower disclosed sexual harassment or harassment committed by a third-party.

Aligning policy and reality

Firms should already have in place policies for whistleblowing, anti-harassment and bullying and equality and diversity. The impending legislative changes may mean that those policies need to be refreshed and made more robust.

That said, policies alone will not suffice if they are part of a tick-box exercise. The FCA has made it clear that the reality of an organisation’s culture – from how safe its staff feel to raise complaints, to how the firm handles complaints it receives – is paramount. The FCA’s COO, Emily Sheppard, in a speech on 4 February 2025 entitled “Culture is Contagious”, said: “Turning a blind eye to toxic behaviours not only drives away good staff, but has to raise serious questions about a firm’s wider decision-making and risk management.” 

Cultivating the culture expected by the FCA will require a ‘top-down’ approach, whereby a firm’s Senior Managers are leading by example. Failing to do this could lead the FCA to suspect that there may be undisclosed issues with the firm which warrant further inquiries – for example, through a skilled person review under its section 166 power. 

Conclusion

The FCA’s increasing focus on non-financial misconduct coincides with the proposal of enhanced harassment protections in the Employment Rights Bill (which are expected to pass without significant amendments given the government’s majority). 

Extra attention will need to be paid to the risks posed by interactions with third parties, and the clarification of sexual harassment as a protected disclosure could require additional notifications to the FCA. The “all” reasonable steps requirement will mean that a tick-box approach, where policies are in place but go unimplemented in practice, are not going to suffice. Firms and their SMFs will need to demonstrate a good understanding of the risk factors for harassment and the steps taken to mitigate against them. They should welcome the raising of complaints and, where complaints are raised, treat them seriously and with respect.

Therefore, while the current political landscape has seen various multinationals start to scale back their DEI initiatives, financial services firms in the UK are likely to have to invest more, not less, thought and resource into these areas in the near future.