The Financial Conduct Authority (“FCA”) has issued new rules and guidance on non-financial misconduct (“NFM”). These changes, which came into effect on 1 September 2026, are likely to have a significant impact on the whole sector.
NFM encompasses a wide range of issues, from bullying and harassment, all the way through to criminal convictions for serious offences. It can be a difficult and subjective area for firms to navigate; after all, one person’s sense of humour may well be offensive to another, and one person’s firm management may be another’s bullying. It is naturally difficult to apply clear and rigid standards to this, even more so in multi-generational, multi-cultural workplaces, where different individuals will have their own sensitivities and views as to what is acceptable.
The FCA has sought to bring clarity and certainty to this issue through a new set of rules and guidance setting out its expectations on NFM, aimed at assisting firms in making fair and appropriate decisions.
What has changed?
Conduct Rules
The Conduct Rules (as set out in COCON) are the baseline standards applicable to the vast majority of employees of regulated firms and their workplace behaviour.
Prior to 1 September 2026, the scope of these was wider for staff at banks than at other firms. At non-banking firms, COCON applied, broadly, to financial services activities only. At banks, however, COCON applied in relation to “any activities” conducted by the firm. This created a dichotomy whereby NFM by an employee at a non-banking firm would be highly unlikely to breach the Conduct Rules, whereas the same conduct by a bank employee may well constitute a breach.
This changed on 1 September 2026. A new rule has specifically extended the scope of the Conduct Rules in non-banking firms to include serious incidents of work-related bullying, harassment and violence. This has significant potential consequences for individuals. Where a breach of the conduct rules has been found, and disciplinary action is taken as a result, the firm is required to notify the FCA and disclose the matter in any regulatory reference. In the case of serious breaches, the FCA can open its own investigation and take disciplinary action in the form of fines and prohibitions.
In addition, those in Senior Manager roles will also be subject to additional regulatory scrutiny. The new guidance is clear that there is a positive duty on managers to tackle these behaviours and to provide a safe environment for their staff. The days of being able to sweep allegations of NFM under the carpet, or simply move problematic staff sideways, are gone. Managers that fail to deal with these issues thoroughly will expose themselves to personal regulatory liability.
Fitness and propriety
In addition to these changes, the new guidance also seeks to clarify how NFM forms part of the fit and proper test (FIT).
Whereas the conduct rules apply to most staff, fitness and propriety is only relevant to a firm’s certified persons and Senior Managers. In contrast to the conduct rules, however, the fit and proper test does extend to individuals’ private lives, where the conduct is such that it poses a material risk that the individual will breach regulatory rules and standards.
A number of changes to this test have come into force on 1 September 2026.
Under the previous guidance, it was mainly financial issues that were relevant to assessing fitness and propriety. However, the new guidance has extended this to include criminal matters beyond allegations of dishonesty (to include offences of a violent or sexual nature) as well as findings, by a court or in a disciplinary process, that the person has engaged in harassment, victimisation or discrimination.
Many firms may also be particularly interested in the new guidance around employees’ social media usage. Whilst firms are not expected to proactively police the social media accounts of their staff, and the lawful expression of controversial views will not necessarily impinge on fitness and propriety, the new guidance makes clear that personal social media usage can be relevant where it indicates a material risk that the individual will breach regulatory standards. This could include where threats of violence are made or there is clear involvement in criminal activities.
What regulated firms should do?
Whilst the FCA is likely to give firms a degree of leeway in interpreting the new rules, it will absolutely expect there to be proper governance around this issue, with robust systems and controls in place to allow firms to make careful and defensible decisions.
In this respect, there are a number of things that regulated entities should consider doing to ensure they satisfy the regulator’s expectations. This includes:
- Updating the relevant sections of staff handbooks, codes of conduct and dignity at work policies;
- Reviewing whistleblowing frameworks and routes of escalation;
- Reviewing social media usage policies;
- Ensuring staff – particularly those in managerial roles – are trained comprehensively and in a way tailored to their specific roles;
- Reviewing the process for providing regulatory references; and
- Conducting thorough and fair investigations, with clear frameworks that carefully record decision making.
How we can help
Kingsley Napley LLP has extensive experience in advising clients on NFM issues.
We can offer clients seamless advice across a range of areas, including Financial Services, Criminal Litigation, Employment and Dispute Resolution. Please contact James Alleyne or Jill Lorimer from our team if you or your firm needs advice on NFM issues.
