Individual Conduct Rule 1 (“You must act with integrity”)[1]
In this third part of our series of articles on the Conduct Rules, we look at Individual Conduct Rule 1 – which requires that all conduct rules staff “act with integrity”.
There is a difference between the concept of “integrity” and the concept of “honesty”, although the two are linked.
Most examples of conduct that demonstrate a lack of “integrity” would, to the man in the street, also be indicative of a lack of “honesty” (for example, misleading a client, falsifying documents, or providing false or inaccurate information). As was made clear in the Frensham case, a person who is dishonest will always lack integrity and reputation.
However, the same does not apply in reverse. It is possible for a person who lacks integrity to remain honest. An example of a lack of integrity not involving dishonesty would include recklessness as to the truth of statements made to others who will (or may) rely on them, or a wilful disregard of information contradicting the truth of such statements.
So, what really is the difference between “integrity” and “honesty”?
Integrity
“Integrity” relates to a person’s “ethical compass”, specifically whether it ‘points in the right or the wrong direction’. It can be regarded as the requirement ‘not to take unfair advantage of others’. It is a broader, more nebulous, concept than honesty.
In professional codes of conduct, the term “integrity” is used to express the higher standards which society expects from professional persons and which professions expect from their own members. Integrity connotes adherence to the ethical standards of one’s own profession. That involves more than mere honesty. Nonetheless, having “integrity” does not require professional people to be “paragons of virtue”. Furthermore, in every instance, professional integrity is linked to the manner in which that particular profession professes to serve the public.
A clear distinction exists between personal integrity and professional integrity. Failing to act with integrity in personal life in a manner which is not relevant to how one is required to conduct oneself in professional life should not, in and of itself, result in regulatory censure. However, professional life and personal life will not always be treated as being entirely separate. A regulator will have to consider whether, in all the circumstances, any failings of personal integrity also amount to failings of professional integrity. Nonetheless, requirements that professional persons act with integrity or be of sufficient repute may reach into private life only when conduct that is part of a person’s private life realistically touches on their practice of the profession concerned. The conduct in question must be qualitatively relevant to issues of professional integrity because it “engages” the standard of behaviour set out in the regulatory code concerned. It is not simply a question of assessing whether the behaviour concerned demonstrates a lack of integrity at large. In considering the question of whether conduct in a person’s private life touches on the practice of their profession, it is necessary to consider whether public confidence in the profession would be harmed if the public, assumed to have knowledge of the facts, found that a person who behaved in a manner under scrutiny was able to continue to practice his profession.
Honesty
“Honesty” is a basic moral quality which is expected of all members of society. Honesty involves being truthful about important matters and respecting the property rights of others. Telling lies about things that matter or committing fraud or stealing are generally regarded as dishonest conduct.
A person who is dishonest is guilty of more serious misconduct than a person who acts without integrity.
COCON and the requirement to act with integrity
The FCA provides a number of examples of conduct that might indicate a ‘lack of integrity’. Often, these relate to misleading clients, the firm, or the regulator – including such things as:
- falsifying documents,[2]
- mismarking the value of investments,[3]
- providing false or inaccurate documentation or information (e.g. details of training, qualifications, past employment record or experience),[4]
- destroying documentation or other information in an attempt to mislead,[5]
- failure to disclose/inform of information,[6]
- preparing inaccurate records or returns,[7]
- misusing assets, or
- misusing confidential information[8].
Clearly, all of these examples relate to the ‘direction in which the individual’s ethical compass is pointing’. However, ‘lack of integrity’ as a concept is wider in application than simply misleading others – extending to include:
- not paying due regard to the interests of a customer, and
- acts, omissions or business practices that could be reasonably expected to cause customer detriment.[9]
Again, however, it is easy to see how these could be regarded as conduct which is designed to ‘take advantage of another’. More generally, is it equally clear to see how all of these examples also go to the heart of the individual’s honesty, as well as their integrity – demonstrating the overlap between the two concepts.
‘Lack of integrity’ in action
A recent (and high profile) example of a ‘lack on integrity’ relates to Jes Staley – former Chief Executive Officer (SMF 1) of Barclays Bank PLC.
In a decision notice dated 30 May 2023,[10] Mr Staley was found to have breach individual conduct rule 1 (as well as other conduct rules).
By way of background, in August 2019, following a number of press reports, the FCA asked Barclays to explain in writing what it had done to satisfy itself that there was no impropriety with respect to the relationship between Mr Staley and Jeffrey Epstein (the disgraced financier who had been convicted of sex trafficking minors). In response, on 8 October 2019, Barclays sent a letter to the FCA. The letter contained two statements (which were central to the FCA’s ultimate findings) to the effect that:
- Mr Staley “did not have a close relationship with Mr Epstein”, and
- Mr Staley’s “last contact with Mr Epstein was well before he joined Barclays in 2015”.
Subsequently, it became apparent that Mr Staley did have a relationship with Mr Epstein that many would – objectively – regard as “close”. Mr Staley had confided in, and sought advice from, Mr Epstein with regards to his career. In addition, the nature, volume and tone of his email exchanges with Mr Epstein suggested a close, personal, relationship (the pair exchanged over 1,700 emails between July 2008 and October 2015 and Mr Staley expressly stated that he regarded Mr Epstein as one of his “deepest” and “most cherished” friends on more than one occasion). Mr Staley also visited Mr Epstein on a number of occasions – even when the latter was in jail.
It also became apparent that Mr Staley and Mr Epstein had been in email contact until at least 25 October 2015 – just THREE DAYS before Mr Staley’s appointment as the new CEO of Barclays was announced – bringing into question the claim that his “last contact” with Mr Epstein had occurred “well before” he joined the bank.
The FCA noted that Mr Staley had been given the opportunity to input into the final version of the letter from Barclays before it was sent to the FCA. They considered that Mr Stalely was aware of the risk which his association with Mr Epstein posed to his reputation and his career, would have known that the FCA would rely on the contents of the letter sent by Barclays, and would have been aware of the risk that the letter would mislead the FCA. Therefore, by failing to correct the misleading statements, and by approving the letter containing the two misleading statements, Mr Staley had acted recklessly and with a lack of integrity. The net result was that Mr Staley was fined £1,812,800 and prohibited from performing any senior management function in the future.
Both the statement that Mr Staley did not have a “close relationship” with Mr Epstein and that his last contact with Mr Epstein was “well before” his appointment as Barclays CEO are subjective and open to interpretation. We’ll never know whether Mr Stalely was being outright dishonest. But herein lies the main take-away from the episode. Individual conduct rule 1 isn’t really about DISHONESTY. It’s about INTEGRITY. It’s about not telling half-truths or seeking to exploit deliberately constructed vagueness. The FCA signalled that it will have no truck with that approach. And why should they? Put simply, they concluded that Mr Staley’s moral compass was pointing in the wrong direction. Given the facts, it’s hard to conclude that they were anything other than spot on. As an industry, we are now on notice of the standards of behaviour that are expected.
[1] Apply to all “conduct rules staff” (COCON 1.1.3R)
[2] COCON 4.1.1G(2)
[3] COCON 4.1.1G(5)
[4] COCON 4.1.1G(8)
[5] COCON 4.1.1G(10)
[6] COCON 4.1.1G(11) and (14)
[7] COCON 4.1.1G(15)
[8] COCON 4.1.1G(16)
[9] COCON 4.1.1G(18) and (19)
[10] https://www.fca.org.uk/publication/decision-notices/james-edward-staley-2023.pdf
