In the highly regulated financial sector, employee misconduct is not just an internal issue – it can expose firms to regulatory, legal and reputational risks. The FCA issued over £42 million in fines relating to misconduct in 2023/2024 alone[1], highlighting the costly consequences if firms do not have robust processes in place to effectively handle any breaches.
When it comes to employee misconduct, a methodical and well-coordinated approach is crucial, especially given the sector’s complex regulatory requirements. Firms need to ensure their HR practices and responses not only address internal policies but also align with their legal and regulatory obligations.
A methodical approach
When a breach of regulation or internal policy occurs, it’s easy to react hastily. However, taking a step back and following a clear, methodical approach should be a firm’s priority. Knee-jerk reactions can lead to miscommunication, unnecessary admissions or pre-judgments, complicating both the disciplinary and regulatory processes.
HR’s role in the initial stages of investigating misconduct is to ensure that the appropriate procedures are followed – which may involve suspending the employee while a thorough investigation is conducted. Proper documentation of all actions taken and communications made is key to ensure that no assumptions are made before a full assessment of the facts.
In addition, regulatory obligations such as filing a Suspicious Transaction and Order Report (STOR) with the FCA or (if relevant) submitting a suspicious activity report to the National Crime Agency (NCA) must also be considered early and reported promptly. HR, whether they are internal or external, should also coordinate these actions with legal and compliance teams / advisors to ensure the proper steps are taken and any relevant deadlines are met.
A well-coordinated approach
Given the financial industry’s stringent regulations, a disciplinary process must operate in close coordination with those regulatory obligations. Parallel investigations may be required - one focused on employment matters and the other on regulatory concerns.
A key responsibility for HR is to ensure that both processes move forward in tandem, while also safeguarding the firm from unnecessary legal exposure. For example, senior staff involved in an initial HR investigation may need to be shielded from certain aspects of the process to remain impartial for any future regulatory determinations or appeals.
Clear roles and responsibilities allow HR to meet both employment law and regulatory obligations without unnecessary conflict.
Regulatory obligations
In many cases, firms are required to submit reports to the FCA or other regulatory bodies such as the Prudential Regulation Authority (PRA). One of the most common reporting mechanisms include filing a Form C, which reports changes in an employee’s fitness and propriety following an incident of misconduct or breach or internal policy.
Working with legal and / or compliance, HR teams must ensure these regulatory filings are accurate and timely, reflecting the outcome of both the internal disciplinary process and any regulatory investigation. Failure to do so not only exposes the firm to regulatory fines but may also damage its reputation and relationship with regulators.
External support
For firms without in-house HR resources, external consulting and background screening services play an invaluable role. These services provide not only expertise in handling complex HR processes but also ensure compliance with financial regulations.
Pre-employment screening, for example, helps firms mitigate risks from the outset by identifying any red flags in an employee’s history before they join. Meanwhile, HR consultants can assist in structuring governance frameworks that define how misconduct investigations are handled.
External HR services, such as those provided by FeMan Consulting, can also provide critical guidance safeguarding the firm from legal repercussions and ensuring proper documentation.
Key takeaways
Employee misconduct in the financial industry demands a well-structured, methodical HR response. Firms must ensure that HR and regulatory processes operate hand-in-hand to protect the business from unnecessary risk.
For those without in-house resources, leveraging external HR consulting and background screening services can be the key to effectively managing misconduct, maintaining regulatory compliance and safeguarding your firm's reputation. At FeMan Consulting we support and advise on HR matters, offering expert guidance on handling misconduct and disciplinary actions with compliance in mind.
If you would like more support and guidance on employee misconduct, contact Mike Clyne for further information.