Financial watchdog could wind up policing our dinner party antics

If the FCA makes it its business to decide whether an off-colour joke at a dinner party is sexist or not, it could wind up intruding on our personal lives, writes Christine Braamskamp

An awkward silence, the quiet clink of cutlery, your host’s quick escape to put the kettle on – all standard fallouts from a misjudged joke or comment at a dinner party. Followed the next morning by a few hastily texted apologies. You learn from the experience, you get relegated several leagues down the invite list, and hopefully you never do it again. And perhaps, if you have a senior management role in financial services, you get suspended from your job pending an investigation that might eventually lead to the loss of your FCA authorisation and entire livelihood. 

Although that last outcome might seem far-fetched, as the FCA continues its consultation on Diversity and Inclusion (D&I) in the financial sector, it remains a live prospect. 

To be clear, many of the FCA’s reasons for bringing D&I within its oversight make sense and are overdue, because the lack of it among financial institutions is a non-financial risk that has the potential to expose consumers to increased financial risk. Misconduct and mismanagement in the industry aren’t just about financial chicanery, they are also a symptom of off-balance sheet behavioural problems that are harder to quantify. These can include a monoculture work environment where staff submit to groupthink and don’t challenge bad decisions. In a worst-case scenario, the culture might be so toxic that staff are too afraid to speak up when they suspect misdemeanours.

While the industry has made improvements on the D&I front since the 2007/2008 financial crisis, there remains a long way to go. The FCA cites a 2022 Deloitte report that found “just 19 per cent of C-suite positions in banking, capital markets and payments are held by women”, while Sir John Parker’s review into the ethnic diversity of UK boards found that “over 100 of the FTSE250 either have no ethnic minority representation on their boards or did not provide data”.  

In addition to the obvious benefits of unlocking new talent and opening the financial services industry to underrepresented groups, the FCA hopes that its interventions will nurture healthier firm cultures and reduce groupthink. The resultant diversity of backgrounds and opinions ultimately lowering the risk of financial misconduct and mismanagement. 

Where the difficulties lie – and where the FCA is so far lacking in guidance and clarity – is in how far financial services companies should go in policing those sorts of non-financial misconduct and discriminatory behaviours that might prevent greater D&I. And even what those misbehaviours are. 

Clear guidance will be essential. Leaving the rules too open to interpretation is dangerous in an era where cancel culture is rife, and offence is in the eye of the beholder. Straightforward examples such as sexual harassment and consistent workplace bullying may be easy to judge. But even in seemingly clear cut cases where the non-financial misconduct is so egregious, such as the case in 2021 when it banned Jon Frensham, an independent director and IFA, from regulated activity after he was convicted and jailed of attempting to meet a child following sexual grooming, the FCA had to rely on his lack of transparency relating to his arrest – the criminal conviction alone deemed not sufficient to impact his job.  

New rules could open the floodgates to even less obvious infractions where financial services employers will have to act as judge and jury. Do missteps, such as a misguided comment at a social event or a drunken brawl outside a pub, represent obvious non-financial misconduct? Without clear answers, more employees will face investigations and suspensions that put their livelihoods and reputations at risk. Even when the outcome is not guilty, the process of reaching that judgement is punishing in itself. 

What is abundantly clear is that the FCA needs to urgently provide clear guidance on this subject. Guidance, which if done correctly, would benefit employers, employees, the financial services sector as a whole, and ultimately, consumers.