The Employment Lifecycle through a SMCR lens: episode 7 - investigations

Jonathan Chamberlain: Hello and welcome to this bonus podcast in the Gowling WLG Employment and Regulatory team series of podcasts that we have been doing on the HR implications of the Senior Managers and Certified Persons Regime (SMCR). Now this podcast is slightly different from the others that we have been running in that it is about investigations and of course there is nothing specific about investigations in the SMCR itself, but we have referred to investigations, the need for them and how they are to be conducted at various points throughout the series, such that we have been asked if we would focus on them in a standalone podcast, which is what we are doing now. I am joined to discuss this topic by my colleague Simon Stephen.

Simon Stephen: Hello Jonathan.

Jonathan: And Emma Bufton.

Emma Bufton: Hi Jonathan.

Jonathan: Both of whom have plenty of experience in this area and you may recognise from our earlier podcasts. Simon, of course, brings a specific in-house experience of running internal investigations as part of the employee relations team of a global investment bank.

Now investigations are crucial in dealing with not just the threat of litigation with regulatory enforcement, but also in an organisation finding out what has actually gone on. Simon what should firms do when they are faced with an allegation whether it is a whistleblowing allegation, whether it is a grievance, whether it is an allegation of misconduct against an individual? What should people be thinking about once they have got past the "we need to investigate this" stage?

Simon: Thank you Jonathan. Investigations as you say are close to my heart having spent a number of years doing them in-house. But before I answer your specific question I think it is really key to remember, as you say, that investigations form part of all the things we have considered as under the SMCR from a HR angle. The investigation will relate to conduct rules and investigations may need to be reported as part of MI, the management information, investigations will come out of whistleblowing, they might well even come out of issues relating to wellbeing. So they really are I think a key part of it.

One of the first things to think about when faced with investigation is whether you actually need to do one in the first place. That will need an assessment of all of the circumstances, not least whether there appears to be a case that needs to be answered, but also whether a formal investigation is the best way to achieve where you want or need to get to. You will also need to think about all the points we will cover later about the fact that regulators may need to be involved and all these other different issues which may complicate it. It may also be that you do not have enough to go on for a formal investigation, where it may be that an informal approach such as mediation or a facilitated conversation can actually resolve the situation better.

Of course it may not even be possible for you to investigate even if you wanted to, and particularly if there is an allegation made anonymously through the whistleblowing reporting channels. If there are no contact details there is no way to identify what the issues are and who it involves, then it is going to be very difficult to investigate. That does follow on from the podcast on whistleblowing as a good reminder to make sure that you have in place a framework for people to raise disclosures or concerns anonymously, but as part of the culture, as part of your learning which people should be encouraged to give as much detail as possible so you can look into it.

But, in any event, when dealing with investigations firms will need to be sure that they are also confidential and follow a consistent and proportionate approach. Again, linking to a previous podcast, and this time wellbeing, the firm should also make sure that they look after those who are involved, have a look at the circumstances of the individuals, are there any specific things that need to be taken into account, and yes that does include thinking about the wellbeing of the naughty ones as well. And reticent participants can be supported with assurances of disclosures about their identity on a need to know basis, confidentiality and looking at other ways they are to protect them. But I think all these need to be thought about at the outset, you need to look at all the circumstances in the round.

Once a decision has been made to investigate, the next decision to look at is to which team does it. We would expect larger firms to have a well-structured approach to investigation issues, which draws in relevant stakeholders as required. So from a HR point of view, it should be clear about what sits in HR and what does not, and if it sits outside HR what is HR's involvement going to be with the ones that do not. You want to also make sure that any follow-up processes that rely on the investigation are of course fit for purpose and do not trigger any employment liabilities. So, if a stakeholder outside of HR is running it, you want to make sure that what they are doing is right and works.

Added to this, another matter you need to think about before you embark on a formal investigation is whether doing so means you have to make any disclosures to the regulators. Now this will of course depend on the nature of the allegation and whether or not the allegation involves a Senior Manager or a Certified Person, and Sushil Kuner has looked at the Principle 11 notification requirements in an earlier podcast. Firms may find that if they notify the regulator, the regulator wants to launch its own investigations, but at the very least they will want to be kept updated and you put that wheel in motion if you like.

Finally I think you just need to make sure that the relevant Senior Manager is of course up to date and kept into the loop about what has happened, about what is going on and what process has been followed. It is of course something that has happened on their watch and in order for them to fulfil their obligations they need to be informed.

Jonathan: So, to bring that back, the first thing the organisation needs to do is to consider whether it should be investigating, whether it actually can investigate and if it should and it can launch an investigation who is actually going to do it? If it is outside of HR how is that going to be managed from the employee relations perspective, risks managed from the employment law perspective and also in terms of looking after those involved, as you put it in terms of looking after the people who are the subject of investigation, if I can describe them a little more formally than the naughty ones as it were.

So we have got to that stage Emma, we are going to go ahead with an investigation, we have thought about who is doing it, we have thought about putting in support for the relevant people, how should a firm prepare?

Emma: Thanks Jonathan. So I think there are a number of points that firms should really be thinking about here, and the first thing I would like to start with is to be clear really that if a firm has decided that it does want to investigate that it should not delay in doing that and should make a start on it as soon as possible. And the reason for that really is two-fold. Firstly, it is going to help firms to demonstrate fairness to the employee who has made that investigation, not least because the sooner it acts the fresher it is going to be in the employee's mind. The second, is that it is in the firm's interest to understand and to get to the bottom of any allegations as soon as possible. The last thing it wants is uncertainty over whether or not it has an issue and coupled with that, Senior Managers who are responsible for that area are going to want to be satisfied that there are not any risks or concerns that they are going to need to address.

So, if moving forward with a formal investigation, and as Simon has already mentioned the right internal team has been identified, the firm will need to start to think about which individual is going to be best placed to carry out that investigation. Now some firms will have their own investigation teams within HR, compliance, audit for example, but others may not have that. So ideally the investigator should be someone who is not involved in the allegation and has received training on how to conduct an investigation. It may in some cases also be appropriate for someone outside the firm to be appointed to run that investigation.

Next, when the firm has identified who should investigate, they next need to think about the scope of that investigation itself, and that is going to involve some analysis of what exactly is the purpose of the investigation, so what is the firm really trying to achieve by investigating? Is it doing it for example to report information to the FCA or is it really using it for internal purposes, perhaps as part of the disciplinary proceeding? Or, will it be used to help firms identify changes and improvements that they need to make? Firms are going to need to understand the purpose at the outset as that is going to impact on the type of investigation and report that they ask for.

When that Investigating Officer has been appointed and they have their scope, they will then need to think through and put in place an investigation plan and they should start doing that before they carry out any formal investigation. Whilst, as I said at the outset they do need to move quickly, that should not be to the detriment of thinking through properly how the firm will carry out that investigation, because that is just likely to create more problems in the long run. The Investigating Officer will need to think through and understand what they are being asked to investigate, who they need to speak to and in what order, but also what evidence they will need and how they are going to get hold of that evidence. They should also think about whether or not there are any actual policies that the Investigating Officer needs to be aware of and comply with, and also crucially if any of those policies are contractual which will mean that they need to be followed to the letter or risk a breach of contract claim. I would echo here what Simon has said about confidentiality and anonymity considerations and making sure that the investigating officer has thought this through properly at this early stage. If the person making the allegation is not anonymous, the investigator will then need to think through how they are going to keep them updated and that may also include keeping the relevant senior manager updated.

One final point to think about is whether or not there is going to be any internal expert witnesses that might also be required to shed light on any particular issue.

Jonathan: So scope the investigation, plan the investigation, check that scope and plan against the organisation's own policies and contracts of employment and remain focused on confidentiality. What about though, Simon, suspension? Should firms consider suspending the employees under investigation as a matter of course in cases of alleged misconduct or wrongdoing, what do we think?

Simon: So it used to be the case that, where there were allegations of misconduct and they could potentially be gross misconduct or they were serious, then, yes, people would be suspended almost as a matter of course because suspension was considered to be a neutral act but around a couple of years ago the law on that changed. It is very clear now that suspension is not a neutral act so if you are considering suspending an individual it needs to be really carefully thought out with rationale and reasons documented very carefully. I think firms should only really consider it if there is a serious allegation of misconduct, particularly if there is any market abuse or trading misconduct or if there is a risk that the employee might tamper with evidence or indeed bully witnesses or anything along those lines. But of course it does also need to be in with the firm's policies, contractual rights etc. and be consistently applied. So, HR should of course always be involved in a suspension decision but I think it is important that other stakeholders, such as legal and the senior manager perhaps from the relevant business, should also be kept in the loop. Not least as well because it may also be necessary to notify the regulator with Form C if a certified person or a person performing a senior management function is suspended. This needs to be done pretty promptly and no later than ten business days after the beginning of the suspension and so it is another factor to consider as to whether you should suspend at that time. Of course, any suspension should also only be for as long as is reasonably necessary and should be kept under constant review as well. You cannot put someone on suspension and then forget about them for a number of weeks or months, until you are in a position to investigate, it needs to be constantly reviewed. Usually, as well, the longer the employee is suspended, the more difficult it is for them to come back to work if they are not going to be dismissed and of course the more likely it is for the employee to be able to argue that their reputation has been damaged too. Of course, back to the wellbeing point, the longer somebody is suspended, the more impact it will have on their mental health. So this is another reason why investigations should be properly scoped and planned for and all these things thought out right at the outset before anything is really done and then if it is undertaken, it needs to be completed as quickly as possible of course whilst still remaining thorough and fair.

Jonathan: Thank you. So now the firm has made the decision that there needs to be a formal investigation, it is planned, it is scoped, it has suspended or not suspended those who need to be suspended or do not need to be suspended, how does it actually go about undertaking the process or rather how does the investigating officer do that? Emma can you take this one?

Emma: Sure. So I mentioned already Jonathan about the importance of fairness in any process that is followed and also the need to make sure that any policies and procedures that the firm has are kept in, but as part of that fairness, the investigating officer should also be thinking about whether they need to offer the right to be accompanied to the employee being questioned and that is because there is a statutory employment protection available to employees and workers and if they get that right they have the right to choose whether or not they wish to be accompanied by either a work colleague or a trade union representative or official.

Investigating officers should also be thinking about, as part of the process, whether or not there are any reasonable adjustments that they might need to make to allow someone to attend the meeting.

Jonathan: Now, one thing that we often come across in starting off investigations is that the investigating officer schedules a meeting with somebody and they refuse to attend or they are actually unable to attend. Simon what would you suggest doing here?

Simon: Yes this is indeed a very common issue that comes up with any employer relations process really and I think the key is to understand why they cannot attend. If it is a reasonable reason, for example illness or a genuine absence, then of course it is only fair to reschedule. If it is a persistent issue so there is constant or persistent rescheduling, then it may be the case that you can call in the cavalry and threaten some form of disciplinary action or do something like that in order to actually make the individual turn up, providing you have got the right to enable them to do so. But often there is more to it then somebody just refusing to cooperate. They of course might not be able to make it for timing reasons or logistics, there are even childcare responsibilities for people working at home during COVID or it might be that they have got other concerns, whether it is because they do not want to meet in person or they are nervous about the whole process, it could be a whole number of reasons so it is always good to explore those reasons and see what can be done to support. But ultimately, if you have got the right steps in place in your policies and procedures, people are generally obliged to attend and you should ultimately be able to get them to get there.

Jonathan: So, let us assume that has happened, the investigating officer has spoken to whoever they need to, they have gathered all the information that they need or they can, Emma, what now?

Emma: Well next they are going to need to pull those findings into a report and how they do that will depend on the purpose of the investigation as I mentioned at the outset so is it a fact finding only report, in which case they will just be expected to report their findings based on the balance of probabilities, or are they expected to go one stage further than that and give recommendations as well?

Jonathan: Well thank you it has been really interesting, I think that is probably as far as we can take it for today, thank you very much everyone for listening.