Risks arising from internal disciplinary procedures

The primary importance of the relationship with the FCA will not excuse the employer from complying with employment law. This and other factors could give rise to a number of conflicts/risks:

  • An employer could be tempted to dismiss an employee to demonstrate to the FCA that a matter is being taken seriously; the investigation process must follow fair principles. It should take no longer than reasonably necessary and be kept confidential. An unfair investigation could lead an employee to claim breach of trust and confidence and constructive dismissal
  • Media relations ­ internal and investigations conducted by the FCA are subject to the confidentiality provisions under section 348 of FSMA. Therefore very little information can be released to the public. In the absence of the full facts, there is a risk of manipulation by the press so generally all media contact should be suspended
  • Those investigating should not be the same persons who conduct the disciplinary hearing. Depending on the nature of the alleged misconduct, the investigation is likely to be conducted by external lawyers but the relevant business team, compliance department, human resources and other parts of the firm may need to be involved
  • Where there is also an FCA investigation and the employee’s conduct is part of that, the employer’s disciplinary process and the FCA investigation will need to be run in parallel. Tension may therefore arise between the objectives of the compliance and legal departments as against the requirements of the human resources department to ensure a fair process is applied and a fair sanction given
  • Documents created in the course of an investigation led by lawyers (whether in-house or externally) may attract legal professional privilege (see below) and therefore be protected from disclosure to the FCA and/or in any subsequent legal proceedings. Equivalent documents created in the course of an investigation conducted by compliance, HR or internal audit staff would not attract similar protection
  • The expectations of FCA enforcement staff may need to be managed; they may expect a firm to take severe disciplinary action and would need to have explained that if the compliance department/outside influence dictate the result of disciplinary action, it could render the action unfair in employment law terms
  • FCA investigation can take a long time and if this causes a substantial (and perhaps unfair) period of suspension for the employee, this can lead to breach by the employer of the employee’s rights under employment law
  • An unfair dismissal which leads to the employee losing their approved status may justify the award of “career loss” (Credit Agricole Corporate and Investment Bank v Wardle [2011] ICR )
  • Whistleblowing – if the regulatory issue has come to light as a result of another employee raising the issue, care needs to be taken when dealing with that employee. Employees are protected from dismissal or suffering detriment (such as bullying or being passed over for promotion) as a result of making a “protected disclosure”. Protected disclosures can be validly made to a variety of people, including the firm and a legal adviser or the regulator. They are disclosures of information that the employee reasonably believes tends to show (among other things) that:
    • A criminal offence has been committed, is being committed or is likely to be committed
    • A person has failed, is failing or is likely to fail to comply with their legal obligations
    • Information demonstrating either of the above, is being or is likely to be deliberately concealed

The employer’s disciplinary panel should determine on the facts, after a reasonable investigation, what the appropriate sanction should be. A dismissed employee is unlikely to give the firm assistance in responding to any FCA investigation, but the employee will be under an obligation to co-operate with the FCA investigation.