City firms race to prepare for FCA crackdown on bullying and harassment

Rules will require hedge funds, insurers and pension firms to report all non-financial wrongdoing

The City’s largest hedge funds, insurers and pension funds are racing to prepare for sweeping rules that will stop nearly 40,000 companies from hiding bullying and harassment cases from the financial watchdog.

From the start of next month, the Financial Conduct Authority (FCA) will expand a crackdown on bad behaviour in the banking industry to a wider group of City investment firms and brokers.

Under the rules, companies will be expected to report any serious cases of non-financial misconduct to the regulator. The firms will also be required to pass on reports of bad behaviour – including racism, sexual harassment, violence and intimidation – to a manager’s prospective future employer. It is hoped that the rules will prevent cases of “rolling bad apples”, where rogue bosses move to new firms without facing consequences.

The FCA’s expanding crackdown beyond financial crime has so far focused on the banking sector. However, with new rules looming for thousands of additional firms, experts say hedge funds, investment managers, insurers and brokers are racing to train their staff and to wrap up any internal investigations before the rules come into force.

“The countdown is now on for regulated firms to be ready for the new rules taking effect in September,” said Jill Lorimer, a partner at the law firm Kingsley Napley, who focuses on financial regulation. “We are aware of firms brushing up their policies and procedures in this area and ensuring training has been thoroughly refreshed and completed.

“Firms dealing with allegations against their people now may want to ensure that these processes are wrapped up before the new regime takes effect. The FCA will no doubt be looking for cases in this area to show it is willing to flex its muscles.

“The City should take these changes very seriously indeed, as no firm will want to be the target of high-profile regulatory attention,” she added.

The new rules will apply to any company bound by the FCA’s senior managers and certification regime, which holds top bosses accountable for wrongdoing.

It comes despite a regulatory pushback by City firms and some politicians who complain red tape in the finance industry is holding back investment, jobs and growth in Britain.

However, a recent spate of misconduct cases have strengthened the argument that cleaning up the financial sector could create a competitive advantage, particularly for an industry long-criticised for operating a boys’ club culture.

That includes the case at Lloyd’s of London, which recently revealed that its former boss John Neal failed to disclose a “close relationship” with a female colleague. The insurance market operator also said that whistleblower reports dating back to 2023 had been mishandled, in a breach of its own governance rules.

A recent court battle against the former Barclays chief executive Jes Staley also appears to have strengthened the FCA’s resolve.