Sex scandals and the regulators. What’s happening and what you need to know

• London law firm sex scandals are currently near a record high according to the FT.
• Most recently, sexual misconduct led to a partner at a magic circle law firm receiving a £35,000 fine and being ordered to pay £200,000 in costs after the Solicitors Disciplinary Tribunal ruled he had breached SRA principles.
• Another senior employment partner in a magic circle law firm is set to face his first Solicitors Disciplinary Tribunal hearing on 5 December 2019 following an investigation into his role drafting a controversial NDA for disgraced film producer Harvey Weinstein.
• Below we look at the approach taken by the regulators in the legal and accountancy professions as well as the financial services industry in dealing with sexual harassment, discrimination and the misuse of NDAs.

Regulators increasing their scrutiny of sexual harassment  

In July 2019, the Government launched a consultation on how best to tackle sexual harassment at work. The Government is considering whether to introduce a statutory duty on employers to prevent harassment at work, whether to introduce protection against third party harassment and whether to extend the three month time limit for bringing discrimination and harassment claims to six months. It is also looking at whether it should extend discrimination laws to protect interns and volunteers. The consultation closed on 2 October 2019.  

There are also concerns that employers are using non-disclosure agreements (NDAs) inappropriately. In June 2019, the Women and Equalities Committee published a report expressing its concerns that employers are using NDAs to avoid investigating discrimination and harassment complaints and that employers are not holding perpetrators to account. In July 2019, the Government announced measures it would be taking to prevent the misuse of NDAs. This includes legislating to ensure NDAs cannot prevent information being provided to certain people (such as the police, lawyers and doctors), requiring those drafting the agreements to make their limitations clear and requiring legal advisers advising on settlement agreements to advise on their limitations.

With the FT reporting recently that London law firm sex scandals are currently near a record high, we take the opportunity to consider the approach of different regulators across the sectors of law, financial services and accountancy. 

Law - Solicitors Regulation Authority (SRA)

Established in January 2007, the SRA is the regulator of solicitors and law firms in England and Wales. The SRA regulates more than 180,000 solicitors.

Guidance - The SRA has dedicated guidance on sexual harassment in the workplace and encourages those in the legal profession to read the Equality and Human Rights Commission guidance for employers on sexual harassment in the workplace. The guide includes a definition and examples of what sexual harassment is and sets out responsibilities as an employer, what a sexual harassment policy should include, how to put the policy into practice, how to handle sexual harassment complaints and what might amount to criminal behaviour. This is bolstered by Law Society guidance on workplace harassment and steps employers can take to prevent it. There is also a warning notice about the use of NDAs and a Law Society Practice Note about NDAs and confidentiality clauses in an employment law context.

Enforcement – The SRA has launched a dedicated sexual harassment unit in view of increasing reports of misconduct and the Solicitors Disciplinary Tribunal (SDT) has increased its sitting days this year to 406 days. On 27 September 2019, the Solicitors Disciplinary Tribunal suspended a solicitor for 18 months who sexually harassed a junior colleague.

On 10 October 2019, the Solicitors Disciplinary Tribunal also delivered its verdict in a case involving Ryan Beckwith, a partner at magic circle firm Freshfields, who was accused of sexual misconduct. The SRA alleged that Ryan Beckwith kissed or attempted to kiss a member of staff in circumstances where he was in a position of seniority or authority. It also alleged that a few weeks later he initiated and/or engaged in sexual activity, where he ought to have known his conduct was unwelcome and that the other party was intoxicated to the extent she was vulnerable and her decision-making ability impaired. The SRA alleged a failure to act with integrity and to behave in a way that maintains the trust the public places in him and the legal profession. 

The Law Society Gazette reported that the Solicitors Disciplinary Tribunal found that Ryan Beckwith had breached SRA principles 2 and 6, in that he failed to act with integrity and to behave in a way that maintains the trust the public placed in him and in the provision of legal services. The SDT imposed a fine of £35,000 and ordered him to pay £200,000 in costs. His lawyer confirmed later that he had resigned from his firm.

Mark Mansell, a senior employment partner at magic circle firm Allen & Overy is also to face his first Solicitors Disciplinary Tribunal hearing on Wednesday 5 December 2019 following an investigation into his role drafting a controversial NDA for disgraced film producer Harvey Weinstein.

Financial Services – Financial Conduct Authority

The FCA is also increasing its activity. Megan Butler, Director of Supervision - Investment, Wholesale and Specialist appeared before the Women and Equalities Committee in 2018 and explained that  the FCA views sexual harassment as misconduct which falls within the scope of its regulatory framework. 

Guidance - The FCA expects firms to foster healthy cultures which support the spirit of regulation in preventing harm to consumers and markets. As Megan Butler said, “A culture where sexual harassment is tolerated is not one which would encourage people to speak up and be heard, or to challenge decisions.” 

The FCA has identified the Senior Managers and Certification Regime (SM&CR) as a key tool in its efforts to improve conduct among staff at all levels. The SM&CR ensures that senior executives are directly accountable for functions which fall under their responsibility. This accountability rests with the most senior individuals – Senior Managers – within an organisation, because these are the individuals with the greatest potential to cause harm to a firm’s customers or the markets in which it operates. The SM&CR currently applies to banks, insurers, building societies and credit unions and will be rolled out to remaining FCA solo-regulated firms from December 2019.

Enforcement – Bloomberg reported in September 2018 that the FCA was looking at how UBS Group AG handled an allegation that a London-based trainee was raped by a more senior employee. It was reported at the time that the FCA was focusing on requirements that regulated firms deal with the regulators in an open and cooperative way, and disclose anything relating to the firm of which that regulator would reasonably expect notice.

Financial News then reported in February 2019 that the FCA has begun a preliminary investigation into the alleged sexual harassment of a female former analyst at $90bn asset management firm, IFM Investors. The allegations were first disclosed during a London employment tribunal in January 2019. 

There is also work going on in the insurance market. A recent culture survey of 6,000 Lloyd’s of London employees confirmed that 8% of respondents had seen sexual harassment in the last 12 months. Lloyd’s, which acts as a regulator as well as a marketplace, has confirmed it is prepared to withdraw licences from member firms which do not improve. Andrew Bailey, chief executive of the Financial Conduct Authority has said the FCA will be following Lloyd’s efforts, “very closely.”

Auditors, Actuaries and Accountants – Financial Reporting Council (FRC)

In July 2019, the UK’s accounting watchdog, the FRC, wrote to the six largest audit firms setting out its expectations for reporting of non-financial conduct to the FRC as part of its Audit Firm Monitoring and Supervision (AFMAS) responsibilities.

The FRC asked for copies of firms’ policies and procedures in relation to internal whistleblowing, grievances, disciplinary matters and complaints from individuals outside the firm. The policies had to  be provided by 30 August 2019 and include those which cover bullying and harassment, discrimination and alcohol/ substance abuse. 

Under the AFMAS framework, the FRC is seeking to establish a clear process for the regular reporting to the FRC of the level of non-financial conduct complaints and how those complaints are dealt with.  Firms will have to report on a quarterly basis. The aim is to provide the FRC with assurance over the effectiveness of the monitoring arrangements firms have in place, along with a picture across the industry of potential emerging areas of concern. The first period for reporting is the quarter ended 30 September 2019, with reports requested by 11 October 2019.

The FRC has also highlighted its expectations that firms will notify the FRC of incidents which could pose a threat to the reputation of the UK firm. This includes matters related to non-financial conduct. The determination of what matters are ‘significant’ in this regard will be a matter for the firm’s judgement.

These steps follow reports in 2018 that 37 UK partners at Big Four firms had been forced out over bullying and harassment issues since 2014. There was subsequent criticism of the FRC for failing to focus on misconduct claims at the firms it supervises. 

Conclusion

It will be interesting to see the outcome of the Government consultation on tacking sexual harassment , more on which can be found here.  

In the meantime, purely on the basis of outcomes, the legal profession appears to be tackling these issues both through enforcement and guidance. Whilst the FCA and FRC have taken some steps, they  appear, for now, to be some way behind. We anticipate this situation will change however over the coming months as increased scrutiny leads to more enforcement outcomes across all these sectors.

Doyle Clayton’s combination of leading employment lawyers and regulatory expertise means we are well placed to support our clients in this area.  Please contact Charlie Herbert or your usual Doyle Clayton contact to discuss how we can help you.