Firms face pressure over incoming non-financial misconduct rules

Chris Evans and Anne Sammon were commenting after the FCA published a policy statement including finalised guidance for firms operating in the financial services sector as it confirmed that new rules on non-financial misconduct will take effect from 1 September this year.

The updated guidance follows the FCA publishing draft guidance for firms in July 2025 on how to tackle non-financial misconduct, includes behaviours such as bullying and harassment that can undermine workplace culture and harm stakeholders.

The FCA invited industry feedback on whether more guidance was needed to help firms adjust to the new rules. The overwhelming majority of respondents requested additional guidance. The FCA published its updated guidance on 12 December “with minor amendments to reflect consultation feedback” to help firms prepare ahead of the new rules coming into force in September.

The guidance includes changes to the FCA’s Code of Conduct (COCON) sourcebook to explain how non-financial misconduct can be a breach of the conduct rules, as well as how it forms part of the Fit and Proper test for Employees and Senior Personnel (FIT). The FCA said it the guidance was expected to help firms “make fair, consistent decisions and take decisive action when standards are breached”.

As many firms resume operations after the festive break, Chris Evans, an employment law expert at Pinsent Masons, said it was critical that businesses engage with the updated guidance with a view to “refreshing internal policies and recognising the complexities and challenges that the guidance now poses.”

Crucially, the guidance clarifies that not all non-financial misconduct is treated equally under the COCON. For instance, the extened COCON which applies to the senior managers and certification regime (SMCR) only applies to “harassment or similar conduct in relation to a fellow member of the workforce”. The rule covers sexual harassment but does not expand the scope of COCON in non-banks to cover other forms of conduct already prohibited by the Equality Act, such as discrimination and victimisation.

It also clarifies the boundary between work and private or personal life and, in keeping with its long-standing position on this issue, reiterates that private or personal life is “entirely out of scope of our power to make and enforce conduct rules for individuals”. The policy statement includes a number of scenarios and flow diagrams to help firms determine these boundaries and when the new rules should apply, but the regulator said “no guidance can cover every scenario” and that firms would always be expected “to exercise [their own] judgement.”  

The FCA said from 1 September the new rules would clarify its expectations of how firms monitor and investigate these types of issues by extending the rules currently applied to banks to around 37,000 other regulated firms for cases of serious non-financial misconduct “to drive greater consistency across” the financial services sector.

However, the regulator said the new rules would not have retrospective effect and it did “not expect firms to undertake any retrospective analysis to check they have correctly determined conduct rule breaches in the past.”

Dr Anne Sammon, an employment law specialist at Pinsent Masons, said the complexity and many nuances inherent in the new conduct rules will likely require firms to seek further guidance on a case-by-case basis. “With a September implementation date and numerous questions arising around what is the ‘interim position’, it is important that clients engage with the guidance and understand what they need to do before it comes into effect,” she said.

The rules follow the FCA publishing a comprehensive survey in 2024 on culture and non-financial misconduct within the UK’s financial services sector. The survey, which gathered data from over 1,000 investment banks, brokers, and wholesale insurance firms, highlighted significant trends and areas for improvement in workplace culture and conduct.

In September 2023, the FCA launched a consultation on proposals for new rules on non-financial misconduct and a new regulatory framework on diversity and inclusion requirements in the financial sector. However, in March 2025 the regulator said it had decided to proceed with the non-financial misconduct rules but was not pursuing further work on developing additional diversity and inclusion requirements.