Overview
On 1 September 2026, the FCA's new rules and guidance on non-financial misconduct came into force. These changes represent a significant shift for regulated firms, expanding the scope of its Code of Conduct (“COCON”) in non-banking firms to align more closely with the standards already applied to banks.
Non-financial misconduct is a broad concept including bullying, harassment, and violence. These changes extend obligations that previously applied primarily to banks to approximately 37,000 additional regulated firms, driving greater consistency across financial services in how non-financial misconduct is addressed.
For HR professionals, compliance teams, and in-house legal counsel, understanding the practical implications of these changes is essential.
Key Regulatory Changes
The FCA has introduced three principal updates:
- New Conduct Rule (COCON 1.1.7FR): Extends the Conduct Rules to cover bullying, harassment, or violence against colleagues where there is a sufficient work-related link. The rule does not apply retrospectively and does not extend the FCA's remit beyond SM&CR financial activities.
- Updated Fitness and Propriety Guidance (FIT): Firms may now consider any relevant non-financial misconduct, including behaviour outside the workplace and social media activity, when assessing fitness and propriety, insofar as it suggests a material risk that the person will breach regulatory requirements.
- Updated Handbook Guidance (PS25/23): Details how non-financial misconduct can breach the Conduct Rules, emphasising case-by-case assessment. The guidance addresses the boundary between work and private life, confirming that only work-related conduct is captured, while clarifying that work dinners, conferences, client events, and work travel may fall within scope depending on factors such as who organised the event and whether professional hierarchies remained active.
Who Is Affected?
The changes apply to all FCA-regulated firms with a Part 4A permission and staff subject to COCON and FIT rules, including asset managers, FCA-authorised fintech firms, wealth managers, brokers, and advisory firms and, as regards the updated guidance, banks.
Regulatory Implications
Culture and Senior Management Accountability
The rule changes codify the FCA's emphasis on culture and good behaviour at all levels, particularly at a senior level. Serious instances of relevant poor behaviour in the work environment may be considered as breaches of the Conduct Rules. For the most senior office holders (those with SMF designations), this includes self-reporting obligations, and employer firms will also have independent obligations to report.
Assessing Non-Financial Misconduct Allegations
As with other principles-based requirements, there will be a need for judgement to be exercised and the published FCA guidance can only go so far in providing some examples for comparison purposes when firms are assessing a particular instance of alleged non-financial misconduct.
Some cases involving non-financial misconduct will be easy to identify , others less so. The former category will be simpler for firms to assess and deal with, the latter more challenging.
The FCA’s focus is on serious misconduct, and the rules are not intended to capture every instance of unpleasantness or friction occurring in the workplace or at work events. These rules leave room for legitimate robust discourse and expression of views, but there will be limits to acceptable behaviour, which will need to be defined in individual cases.
Factors relevant to assessment include:
- Whether the behaviour is a single or repeated instance
- The precise nature and tone of the conduct
- Whether there have been prior warnings
- The seniority of the individuals involved and any relative disparity between the parties
- Whether there are aggravating features such as repetition, retaliation, or concealment
- Any particular vulnerabilities or personal characteristics which may be exploited by one party at the expense of the other in a given instance
Employment Law Implications
Allegations of non-financial misconduct will also likely be matters that HR would want to investigate and consider under disciplinary procedures. The removal of the compensation cap for unfair dismissal claims introduced by the Employment Rights Act 2025 (in force 1 January 2027) mean that dismissals of high earners will carry the potential for significantly increased liability, and so it is advisable in any event to ensure all allegations of misconduct that could potentially lead to dismissal are appropriately investigated. The risk of not investigating properly, or having flaws in the process, will become materially higher.
This is compounded where the reason for dismissal must be disclosed in a regulatory reference (as defined in the FCA rules) given the real likelihood of a career-long impact on that individual's employability in the same industry. Once the cap is removed, those long-term losses of earnings are potentially recoverable in full in an Employment Tribunal should the dismissal be deemed unfair. Firms should also be alert to the possibility that the employee may raise counter allegations, a grievance or a whistleblowing complaint in response to an investigation, and that any regulatory reference must be accurate, fair and based on a properly evidenced finding.
Practical Steps for Firms
Firms should ensure the following are in place:
- Staff policies updated to reflect that non-financial misconduct can constitute a Conduct Rule breach
- Fit and proper assessments that incorporate non-financial misconduct considerations.
- Staff training so that staff and senior managers understand the changes and their application. This is an excellent opportunity to provide a refresher generally of the regulator’s expectations on good behaviours and the content of the Code of Conduct. It is always sensible to ensure an element of testing and assurance as to the effectiveness of this training.
- Clear non-financial misconduct investigation processes, with HR, legal, and compliance teams working together from the outset, setting comprehensive terms of reference. Depending on the size and structure of a firm, it may be necessary or desirable to have written polices and procedures around this.
- Procedures for fair investigations. Investigations must be conducted fairly and fully, with careful attention to context, including what happened, who knew, what power dynamics existed, and whether there are aggravating features such as repetition, retaliation or concealment.
- Well-trained investigators – Ensuring that investigations carried out in-house have independent and well-trained investigators will be key. For complex issues, many firms may choose to appoint an external investigator to collate and review the evidence. For complex issues, firms may choose to appoint external investigators. As with any internal investigation process, the issue of legal advice privilege out to be considered in the appointment of any external advisers assisting and the work product of those advisers.
- Balanced disciplinary outcomes that weigh mitigating factors such as isolated conduct, genuine insight, and apology.
- Evidencing judgement and decision-making in disciplinary procedures. The guidance does not remove the need for judgement; rather, it requires firms to evidence their judgement more clearly.
- Conduct breach reporting procedures that capture relevant non-financial misconduct breaches.
- Regulatory reference procedures that ensure non-financial misconduct findings are appropriately disclosed.
Looking Ahead
The primary responsibility for preventing non-financial misconduct and dealing with it when it occurs rests with firms themselves. With the new rules now in effect, firms should review policies, train managers, and ensure investigation and disciplinary frameworks are fit for purpose, with full integration between HR, compliance, and legal teams.
Please get in touch with Ingrid Hesselbo if you have employment law questions regarding the above, or Kate Troup, Doug Cherry and Emily Domingo if you have any questions regarding the regulatory implications of the changes to your company’s policies and procedures.
