The Financial Conduct Authority is set to extend rules that define serious bullying and harassment as a conduct rules breach to advice firms from next year, and some advisers have warned that many small firms are neither culturally nor structurally prepared.
From next September, bullying and harassment will be treated as misconduct across all regulated financial firms.
The regulator says that, in the past, it has often been unclear when these types of behaviour would amount to a conduct rules breach in a firm other than a bank, so this change aims to bring consistency across financial services.
I was subject to bullying, email harassment and intimidation. The lack of processes and oversight meant that this behaviour went unchecked
But many small advice firms operate with few or no processes or oversight, which could expose them to regulatory risk once the rule change kicks in.
‘Cultural shift’
While larger firms often have official human-resources and compliance processes in place, a lot of smaller firms operate in a more informal manner.
This can lead to bullying and harassment complaints falling by the wayside, some advisers have told Money Marketing.
One IFA, who spoke to Money Marketing on condition of anonymity, said they had recently made a serious bullying claim against someone at their previous firm and had been subject to even more harassment as a result.
If firms are required by the regulator to be more accountable, it will no longer be an option in future, so they will just have to bear the cost
They hoped the FCA’s rule extension would force firms to treat bullying claims seriously and fairly.
“I think the cultural shift required to meet the FCA’s new rules is significant, and that is a good thing,” they said.
“I was subject to bullying, email harassment and intimidation in a small advice firm and my pay was withheld for two months. The lack of processes and oversight at the firm meant that this behaviour went unchecked.”
They added that the culture within small advice firms could often mean that the perpetrator of any bullying and harassment was the same person who would potentially deal with any complaints, which could leave advisers feeling “extremely vulnerable”.
For firms that are concerned about complying with the rules, they may have to engage third-party firms to provide those services
“The person who is the source of the bullying may also be the one in control of compliance, pay and regulatory references, so there is effectively nowhere safe for an adviser to turn.”
Danger of non-compliance
The adviser said that, while they thought the FCA’s reforms were good and could help drive this cultural shift, they believed there would still be significant non-compliance among smaller firms long after the rules had come in.
“Without the resources or expertise to manage complaints and without the checks or balances of a proper HR function, there is a real danger of non-compliance and of advisers continuing to be subjected to the behaviour the FCA is trying to address,” they said.
Firms should sort of have this stuff in place anyway
They added that firms might find themselves “exposed to regulatory risk” if they continued to operate in the same way as they had done in the past and were caught out, however.
Eleven.2 Financial Planning founder Greg Moss agrees that many small firms are unprepared and could fall foul of the new rules next year.
“Most small firms are HR-free zones and that is likely to continue for the foreseeable future, so it’s going to be really difficult for them to put the right processes in place,” he says.
“I imagine that most firms won’t bother and some may just face the consequences of that down the line.”
Potential cost burden
Moss says some small firms may choose to outsource their processes to HR consultants or an HR service because they won’t have the resources to deal with it in house, which could become an unwanted extra cost burden for them.
Without the resources or expertise to manage complaints and without the checks or balances of a proper HR function, there is a real danger of non-compliance
“For those firms that are concerned about complying with the rules, they may have to engage third-party firms to provide those services,” he says.
“Initially, that is going to be seen as yet another overhead for small firms that they don’t want to pay for. But, on the other hand, they should sort of have this stuff in place anyway.
“If firms are required by the regulator to be more accountable, it will no longer be an option in future, so they will just have to bear the cost.”
Improving adviser experiences
Moss adds that, although many firms are currently unprepared to deal effectively with bullying and harassment complaints, the regulatory action that they could face may ultimately benefit the profession in the long term.
The cultural shift required to meet the FCA’s new rules is significant, and that is a good thing
“For employees at small advice firms, it’s often potluck in terms of what the culture is like as the culture is probably a product of what the owner is like. So these rules are potentially good if they drive a shift towards more consistent experiences,” he says.
“However, firms will just have to get over the hurdle of extra costs and implementing more processes first, which they aren’t going to like.”
Laura Purkess is a freelance finance writer
