“We recognise that ensuring a fair environment for employees can be a good indicator of a firm’s culture, which we see as important for how it is treating its customers as well.”
They’re the words of the FCA in a recent letter to the union. It’s a crystal-clear indication that the FCA has a clear interest in how regulated firms treat their staff.
Background
At the end of last year, we wrote to the FCA to present a significant body of evidence we’d gathered which showed inherent unfairness in Lloyds’ application of the FCA’s Conduct Rules and Certification Regime.
You’ll no doubt have received some training on the 5 rules set out under the FCA’s COCON 2.1: Individual Conduct Rules. These are:
- You must act with integrity.
- You must act with due skill, care and diligence.
- You must be open and cooperative with the FCA, the PRA and other regulators.
- You must pay due regard to the interests of customers and treat them fairly.
- You must observe proper standards of market conduct.
On the face of it, the rules are simple and straightforward to understand. But their simplicity regularly causes problems because it means they’re open to interpretation. Lloyds’ interpretation and implementation of the Conduct Rules has often been inconsistent, poorly structured and badly managed, with inevitable unfairnesses in the treatment of staff.
The Issues
We made clear that the most Senior Managers in Lloyds Bank:
- Had failed to put in place satisfactory policies and procedures to govern the process for applying the ‘fit and proper’ test and for determining breaches of the Conduct Rules.
- Where policies had been put in place, they had failed to take reasonable steps to ensure there were appropriate procedures governing the above matters and/or failed to implement such procedures effectively and fairly.
- Had delegated critical Conduct Rule and Certification decisions to junior staff who clearly lacked the competence, knowledge, seniority or skill to deal with such decisions.
- Had failed to provide sufficient training on Conduct Rules to employees.
We called on the FCA to ensure that Lloyds Bank, and the financial services industry more widely:
- Acts fairly and transparently when considering potential Conduct Rule breaches.
- Institutes policies and procedures which ensure consistency of decision making.
- Gives proper consideration at a senior level to whether a matter actually warrants a referral to the FCA.
- Gives employees mechanisms to appeal to truly independent parties.
- Trains genuinely senior managers on how to evaluate potential conduct rule breaches, rather than leaving it to inexperienced people or compliance staff to make decisions.
- Reviews cases at senior levels, where employees have demonstrable competence, rather than allowing junior staff to make final, career-ending decisions.
FCA Response
In response to our submission, the FCA contacted Lloyds and then wrote to us to confirm its expectations. The correspondence between the Bank and the FCA was confidential, but in its letter to us the FCA emphasised the importance of transparent application of the Conduct Rules and thorough training of staff, which are both areas in which we believe the Bank has failed. Crucially, the FCA said that where employers are considering alleged Conduct Rules breaches or conducting a Fit and Proper Assessment:
“In our view, a fair process would have the same characteristics as a fair disciplinary process. That means that there should be transparency about how decisions are made, independent input to reaching an outcome and a way of appealing the decision internally.”
This is one area where Lloyds was not meeting the requirements of the regulator. The FCA’s clarification of its expectation, in response to our campaign, is a major step forward in ensuring staff are treated fairly.
In light of the FCA’s response, we’ll be monitoring closely the Bank’s approach to Conduct Rules and Certification Regime issues. Lloyds is an organisation with an awful track record of FCA breaches: the Bank must put sufficient time and money into addressing these issues and ensure that managers with sufficient seniority and expertise are engaged when it deals with potential career-ending issues.
We will report any further issues to the FCA.