Following the FCA’s consultation on diversity and inclusion and its survey on non-financial misconduct earlier this year (which is no doubt informing the formulation of the anticipated FCA guidance on this topic), Lloyd’s have issued a consultation on a “modernised approach to dealing with poor conduct and behaviours in the market”, recognising that its current processes for dealing with issues in this area are unclear. The consultation covers financial and non-financial misconduct and key takeaways include:

1. Improper conduct:  In addition to discreditable and detrimental conduct, the proposal includes adding a new category of “improper” conduct within the overarching concept of “misconduct”. Some helpful pointers are provided on the types of behaviour that might amount to misconduct such as any act or omission (or permitting any act or omission) which amounts to harassment, bullying, discrimination or an improper abuse of power over more junior staff and, in certain circumstances, conduct involving alcohol or illegal drugs. The proposal also involves clarifying that it is not necessary for Lloyd’s to demonstrate that harm has been suffered by Lloyd’s at an institutional level.  Some harm, such as bullying, is inherently unacceptable regardless of whether it causes harm to the Lloyd’s market. Notwithstanding the more detailed guidance, however, an element of judgment will be required because ‘discreditable’ and ‘improper’ are to be considered by reference to the standards of conduct and behaviour “reasonably to be expected” of those in the market, as well as in light of the law. Some individuals will be in the unenviable position of having to determine those standards and they will require support and advice in making those decisions.    
2. Conduct outside work:  Under the proposals investigations and enforcement action might also extend to conduct taking place outside the ‘professional environment’ if there was a ‘material connection’ to the Lloyd’s market such as the presence of other market participants including in a social setting. The proposed wording reads broadly although the accompanying report states that the intention is to align with the FCA approach, noting that the FCA’s current position is that relevant conduct could take place in ‘social situations related to work’ (but not social situations simply attended by work colleagues with no other connection to work).  
3. Reporting: Obligations to report would be extended beyond situations where there is reason to believe that a failure has occurred, or is intended, to circumstances in which any market participant reasonably believes that either they or another market participant may have committed (or may be committing) certain transgressions including “material misconduct” (materiality being judged by reference to an assessment of its significance to Lloyd’s including from a disciplinary perspective).  
4. Whistleblower and witness treatment: Misconduct would include any improper conduct towards a witness or whistleblower including subjecting them to any detriment, involvement in revealing their identity or even discussing their involvement in any alleged misconduct unless this is for the purpose of or in connection with an investigation or proceedings. Consideration will have to be given to whether this makes sufficient allowance for relevant individuals to consider and take advice on the appropriate steps in the event of issues being raised.   
5. The Early Account Scheme and Investigations: Lloyd’s has helpfully confirmed that it is not planning to become “more directly interventionist” but the flip side is that there is clear expectation on firms to investigate their own employees and address issues themselves and to consult with Lloyd’s on such investigations where appropriate. Firms would need to have robust internal investigation processes, aligned with the Lloyd’s Culture Principle, which Lloyd’s notes may include instructing external advisors to investigate in serious cases. Failure to deal robustly with inappropriate behaviour or to adhere to internal processes could result in a downgrade to a Culture Principle rating or the syndicate’s overall rating. Conversely conducting an internal investigation would offer the chance to improve the outcome for the firm in the context of any enforcement proceedings as it will be taken into account in deciding on any settlement terms. 

Responses to the consultation are due by 16 December 2024. In the meantime, now would be a good time to consider internal policies and procedures and the approach to handling any potential misconduct issues in light of the proposals, as well as any practical implications for implementation of a new regime, including training and properly equipping relevant internal stakeholders to make decisions on the conduct of their fellow workers.      

Market bulletin (lloyds.com)