Increasing diversity and inclusion continues to be a key focus area for the Financial Services sector, and as covered in our recent blog, senior FCA figures have emphasised the regulators' continuing focus on healthy cultures as a driver of positive outcomes. Last year the FCA and PRA published consultation papers seeking to boost diversity and inclusion, and reiterated the regulators' stance that non-financial misconduct, with specific reference to sexual harassment, is misconduct for regulatory purposes. A further FCA policy statement is expected in 2024, with new rules coming into force 12 months after that.

The new duty

In recent years there has been a cultural shift in the way in which allegations of sexual harassment are viewed and handled by financial services firms, largely kick started by the #MeToo movement. Allegations are generally dealt with in a much more proactive and robust manner. Although progress has undoubtedly been made, the government (and indeed any future Labour government) acknowledges that there is still work to do. Statistics would seem to back this up, with the Fawcett Society reporting earlier this year that 40% of women experience sexual harassment in the workplace. Against this backdrop, the government has passed new legislation (The Worker Protection (Amendment of Equality Act) Act 2023) and employers will soon be subject to a new obligation to take ‘reasonable steps’ to prevent sexual harassment of their employees (as defined by the Equality Act 2010) in the course of their employment. 

The Act comes into force in October 2024, and will require employers to proactively take steps to reduce workplace sexual harassment. Under the new Act, if an employee succeeds in a claim for sexual harassment, an Employment Tribunal will be required to consider whether the employer breached its duty to take reasonable steps to prevent sexual harassment and whether to uplift any award of compensation by up to 25%. The uplift will apply to any compensation that is awarded for the unlawful harassment, so could result in a substantial increase. The Equality and Human Rights Commission (EHRC) will also have powers to enforce the duty and so will be able to take enforcement action against organisations which are in breach of the new duty.

When the new duty comes into force in October, all employers will need to be able to show that they have reasonable steps in place to combat sexual harassment. While many employers will already have processes in place to prevent sexual harassment in the workplace, it would be sensible to start to address what needs to be done to comply, to make sure everything is in order. Depending on what is required, the steps needed may not be overnight fixes and will take time to bed in. There is plenty to consider, but the following may be helpful starting points:

• Inclusive workplace culture - prevention is always better than cure, and fostering an inclusive culture from the top down is the best preventative measure an employer can take. Creating (and maintaining) a climate of respect and inclusion within the workplace, with a clear zero-tolerance approach to harassment, is crucial to combating the risk of unacceptable conduct. The FCA has already identified that second and third line functions will be key in helping SMFs hold all leaders to account for their organisation's culture.

• Effective complaints handling processes - to create a culture which is visibly and credibly anti-harassment, all complaints of harassment should be handled and investigated appropriately. It is important that staff understand how to raise complaints, and crucially that they trust that their complaint will be listened to and dealt with empathetically. The FCA's Executive Director of Risk and Compliance has referenced the importance of ‘fearlessness’ to ensure that healthy, purposeful cultures can thrive - employees need to feel free to speak up and, even more importantly, their bosses should feel compelled to ‘listen up’.

• Monitor and evaluate progress - it is sensible both culturally and with an eye to demonstrating adherence to the new duty to ensure that the measures you put in place are monitored and reviewed, on a regular basis, to demonstrate effectiveness and ongoing compliance with the duty to take reasonable steps.

This update covers the new Act in detail, explores particular steps that employers may want to take, and includes links to helpful resources. More guidance is expected later this year from the EHRC.

How we can help

We have extensive experience of advising organisations on equality issues including in relation to lawful positive action which some employers are starting to explore. If you would like more information on the above, or specific advice please contact James Green or another member of our Employment Team.

This update was co-authored by James Green and Rebecca Mullins.