Financial firms in Britain are sharpening their focus on employee conduct, with some weeding out staff suspected of misconduct such as harassment and bullying ahead of new rules designed to curb an industry lawmakers have called a hotbed of abuse and bullying, lawyers told Reuters.
Lawyers at three firms in London said some companies were dismissing such employees before new rules increase scrutiny, reporting requirements and the potential consequences of mishandling non-financial misconduct cases on September 1.
The Financial Conduct Authority (FCA) is amending conduct rules and fitness-for-office tests to add serious, work-related bullying, harassment and violence against colleagues in 37,000 non-bank firms such as asset managers, hedge funds and insurers.
The changes are designed to bring non-bank finance rules into line with those already in place for banks, although new guidance spells out more explicitly the misconduct all firms are expected to tackle.
The three lawyers said companies were setting a low bar for dismissals, and in some cases, human resources departments might even be using the upcoming rules as a pretext to part ways with those not meeting expectations.
Wendy Saunders, a partner at law firm Lewis Silkin, said she had seen two or three cases where firms appeared to "dress up a minor conduct issue as non-financial misconduct" to dismiss an underperformer.
Three lawyers from different firms said they were running scenario-based training courses for executives, managers and even interns on the new rules — which include manager accountability for failures to address conduct rule breaches.
TACKLING RAINMAKER BULLIES
The FCA's rules, published alongside extensive guidance and detailed illustrative scenarios and flowcharts, go beyond employment law by separating conduct such as bullying from legal protections against discrimination based on characteristics such as race, sex, disability or religious belief.
David Cummings, an employment lawyer at KPMG, said the rules would allow firms to tackle poorly behaved star performers by providing a regulatory consequence for bullying that does not exist under employment law.
"The FCA is trying to capture the high-performing bully, who organizations may have traditionally held their nose or been prepared to turn a blind eye to because they're a rainmaker, but they're toxic for the workplace environment," he said.
Reuters spoke with lawyers at seven mid-sized law firms with sizeable legal practices and one of the Big Four professional services firms.
Of those, lawyers at two firms said they were not aware of staff being let go because of conduct allegations ahead of the new rules. The rest either reported a small number of dismissals or confirmed that conduct was increasingly in managers' focus.
Asked for comment, the FCA did not directly address the examples of how a greater focus on misconduct could be abused, but said the new rules created more clarity.
"Our rules and guidance will help industry take a more consistent approach to tackling non-financial misconduct – however primary responsibility for preventing and dealing with it lies with firms," the watchdog said in a statement.
A spokesperson for the Alternative Investment Management Association said the body had published guidance for members.
"As firms prepare for go-live, many are reviewing their policies, training and governance arrangements, although the practical impact will depend on the frameworks they already have in place," the spokesperson said.
The Association of British Insurers and the Managed Funds Association did not immediately respond to Reuters requests for comment.
CHALLENGING CULTURE
Culture in Britain's financial services industry has long been in the spotlight.
Lawmakers on the parliamentary Treasury Committee voiced shock at the prevalence of sexual harassment and bullying — and at how poorly such allegations were handled — in a 2024 report on sexism in London's financial centre.
Under the new rules, conduct breaches must be disclosed to future employers under regulatory references or formal fitness-for-office assessments, designed to prevent "rolling bad apples" from avoiding consequences by moving from job to job. Instead, offenders risk a potentially career-ending regulatory investigation.
The guidance also covers social media activity.
Lawyers now worry the rules might be applied inconsistently, partly because firms are worried about ending up in regulatory crosshairs.
"Based on what I am seeing, many employers are still likely to reach knee-jerk conclusions in relatively minor cases, often opting to exit individuals rather than risk potential criticism from the regulator," said Claire Cross, a partner at law firm Corker Binning.
