Most of Lloyd's' findings about Atrium focus on the misconduct of one of its employees, who is referred to as "Employee A" in the notice of censure. Employee A was found to have engaged in a "systematic campaign of bullying against a junior employee over a number of years", which also involved discriminatory behaviour. Lloyd's found that Employee A's general conduct was "well known" within Atrium, including by members of Atrium's senior management team but that no adequate steps were taken to deal with it.

Lloyd's was critical about the way in which Atrium had handled Employee A's misconduct and made the following findings:

Lloyd's found that these findings constituted a breach of Principles 6 and/or 10 of its Enforcement Principles, which cover "[a]ny act or omission […] capable of damaging Lloyd's brand, licences, or the Central Fund or otherwise likely to bring Lloyd's or the Lloyd's market into disrepute" (Principle 6) and specifically "[a]ny act or omission or permitting or any act or omission amounting to (a) the harassment (whether sexual or otherwise) or bullying of another person or persons; or (b) discrimination against a person or persons on the grounds of race, gender or sexual orientation" (Principle 10).

Lloyd's also found that these findings constituted detrimental treatment, which is defined in paragraph 3(b) of its Enforcement Byelaw as "conduct that is detrimental to the interests of [Lloyd's, its] members underwriting agents or Lloyd's policyholders or others doing business at Lloyd's".

Lloyd's found that Atrium failed to notify it of Employee A's misconduct, describing this as a matter "of which Lloyd's ought reasonably to have been informed". Lloyd's found that this failure to notify Employee A's misconduct constituted a breach of Principle 8 of the Enforcement Principles which covers "[f]ailure or causing or permitting a failure to deal with Lloyd's in an open, honest and transparent manner or to ensure that Lloyd's is promptly informed of any matter which it reasonably ought to know", which constituted detrimental conduct as defined in paragraph 3(b) of the Enforcement Byelaw.

Separate to its handling of Employee A's misconduct, Lloyd's also found that Atrium had sanctioned and tolerated over a number of years, until 2018, an annual "Boys' Night Out" during which some male employees (including two senior executives in leadership roles) "engaged in unprofessional and inappropriate conduct, including initiation games, heavy drinking and making inappropriate and sexualised comments about female colleagues, which were both discriminatory and harassing to female members of staff". Lloyd's also noted that "[s]ome of this conduct was led, participated in and condoned, by the two senior managers in attendance".

Lloyd's found that this conduct constituted detrimental conduct contrary to Principles 6 and 10 of the Lloyd's Principles, which constituted detrimental conduct as defined in paragraph 3(b) of the Enforcement Byelaw.

This is not the first time that a regulator or an authority has taken enforcement action in relation to non-financial misconduct. The FCA has taken highly publicised enforcement action against four individuals for non-financial misconduct that did not involve dishonesty in the last 18 months. The FCA imposed prohibition orders on each of these individuals on the basis that they were not fit and proper to perform roles in the UK financial services industry on account of them being convicted of serious sexual and violent offences which took place outside the workplace (see Legal updates, FCA imposes prohibition orders on three individuals for non-financial misconduct, A&O decision insight: FCA decision notice relating to non-financial misconduct and FCA final notice for non-financial misconduct).

The enforcement action taken against Atrium is different to these other cases. Aside from the fact that it is Lloyd's that has taken the enforcement action and not the FCA, this case is the first UK enforcement action against a financial services firm involving non-financial misconduct that took place in the workplace or at work-sponsored events. It is also the first enforcement action to examine the adequacy of a firm's response to this type of misconduct.

Although it is notable that the FCA has not yet taken enforcement action against a firm or an individual for non-financial misconduct that occurred in the workplace or at work-sponsored events, it is unlikely that Lloyd's' enforcement action against Atrium came as a surprise to the FCA. The FCA regulates Lloyd's as well as its members and, as a result, was most likely aware of and kept updated about Lloyd's' investigation into and proposed enforcement against Atrium.

For more information about Lloyd's, including how it and the key players in the Lloyd's market are regulated, see Practice note, Lloyd's of London: overview.

Lloyd's' enforcement action against Atrium sends a clear message to firms (even if they are not regulated by Lloyd's): namely that they must implement and operate robust processes to identify and handle allegations of non-financial misconduct when they arise. Although most financial services firms will have some processes in place to cater for these situations, allegations of and investigations into non-financial misconduct can be complex and often require a multi-disciplinary approach to ensure that firms navigate regulatory requirements and expectations on the one hand, and employment law requirements on the other.

Although Lloyd's was critical of Atrium in this case for entering into a settlement agreement with Employee A rather than putting Employee A through its disciplinary process, firms may still use settlement agreements to manage employee exits when it is appropriate for them to do so. However, firms will need to think carefully as to whether this approach is in fact appropriate in a particular situation. In Atrium's case, Lloyd's appears to have taken the view that it was inappropriate for Atrium to have entered into a settlement agreement with Employee A because this went against the recommendations made by its own internal investigation into Employee A's conduct and because the rationale for doing so was to avoid "bad publicity" for the firm.

Even after the dust settles on an investigation into allegations of non-financial misconduct (or other types of grievance or whistleblowing investigations), firms must ensure that they are taking appropriate and proportionate steps to allow for the reporting and monitoring of potential victimisation or retaliatory treatment after individuals have raised allegations previously. These processes should not only cater for more overt types of victimisation or retaliatory treatment, but should also include longer term monitoring to check how an individual who has raised allegations is treated in appraisal, remuneration and promotion processes in the coming months and even years. This can be difficult to do in practice as it requires careful management and because the identity of the whistleblower will be ring-fenced and only known to a few individuals.

Unlike Lloyd's, neither the FCA nor the PRA have introduced any new rules or formal guidance in relation to non-financial misconduct. Instead, the FCA and PRA are relying on statements made in policy documents, speeches and published letters to third parties to make their views about the regulatory importance (and potential regulatory implications) of non-financial misconduct known in the market. However, both regulators are clear that non-financial misconduct and failing to handle allegations of this nature appropriately are still capable of amounting to misconduct from a regulatory perspective under the FCA's Principles for Businesses, the PRA's Fundamental Rules and both regulators' Individual and Senior Manager Conduct Rules.

Although not the subject of the enforcement action, the notice of censure highlighted the actions of certain members of Atrium's senior management team. For example, members of Atrium's senior management team were found to have been aware of and tolerated Employee A's bullying and discriminatory conduct. In addition, the idea that Employee A to enter into a settlement agreement as opposed to going through a disciplinary process to avoid "bad publicity" was attributed to Atrium's senior management. In addition, two unnamed members of Atrium's senior management team were found to have "led, participated in and condoned" the inappropriate conduct that took place during Atrium's annual "Boys' Night Out" that took place until 2018 (just as the FCA and the PRA started to publicly state their regulatory interest in non-financial misconduct). These findings underline a regulatory expectation that senior management should not "turn a blind eye" when it comes to non-financial misconduct that comes to their attention, nor should they tolerate, participate or condone such misconduct.

The FCA and the PRA have suggested that, as part of their broader work on diversity and inclusion (D&I) in the financial services industry, they may seek to introduce more formal guidance about the potential regulatory implications of non-financial misconduct. Their consultation paper on this topic is expected in Q3 2022 (see Legal update, Joint FCA, PRA and BoE discussion paper on diversity and inclusion in the financial sector).