UK employers tighten decision making after FCA misconduct update

The Financial Conduct Authority has published its update on non-financial misconduct. The guidance explains how firms should apply the FCA’s rules on minimum standards of behaviour and how conduct may be relevant to fitness and propriety assessments. It will come into force on 1 September 2026, alongside a new rule in the FCA’s Code of Conduct sourcebook.

Crucially, the FCA has confirmed that bullying and harassment will now be treated as potential conduct-rule breaches across FCA-regulated firms, with the regime extended beyond banks to non-bank firms, including asset managers, insurers, and pension providers. For employers and HR teams, this matters because workplace behaviour may now carry regulatory consequences, not just employment ones. We’ll speak to a lawyer advising FS firms on this issue.

At headline level, this looks like a broad expansion of the FCA’s approach to non-financial misconduct, but for non-bank firms the position is more specific. Until now, non-banks dealing with bullying or harassment allegations had to assess whether the individual’s role and activities were sufficiently connected to regulated business before applying the conduct rules. The key change is that, for bullying and harassment, that threshold falls away. The FCA is saying those behaviours will always be relevant to conduct-rule assessments in non-banks, regardless of role.

However, this is not a blanket expansion. Although the update is often described in broad terms, the conduct-rule changes focus specifically on bullying and harassment. Other behaviours, including discrimination and victimisation, are treated differently, and still require the role-connection analysis.

The FCA is not expecting firms to audit past conduct-rule decisions as a matter of course. But where issues resurface, for example through regulatory reference requests, firms may need to revisit how breaches were classified and whether records or notifications need correcting. The result is that HR teams still need to pause before moving from a disciplinary outcome to a conduct-rule conclusion. In some cases the threshold has been removed, in others, it remains.

So let’s hear more on this. Anne Sammon is currently talking to a number of her FS clients on this issue and earlier she joined me by video-link to discuss it. 

Anne Sammon: “So to start off with, the update is mainly most relevant to anyone who isn't a bank. So banks already are subject to a lot of the rules that will come in for non-banks. So if you're a bank this is guidance; if you're a non-bank this will be rules and guidance as well. The really key change in relation to conduct rule breaches is to make bullying and harassment always something that will be considered in terms of whether or not it's a conduct rule breach rather than the current position which is, if you're a non-bank you have to go through a process of thinking, what activities was the person who we are accusing of harassment or bullying doing? What's their role? Is that sufficiently connected to the regulatory side of the business such that they are caught by the conduct rules? These new rules and guidance will do away with all of that. So essentially, they are expanding the remit of the FCA to think about bullying and harassment in non-banks, irrespective of the role that people do.”

Joe Glavina: “I see that the FCA has decided not to define non-financial misconduct. So judgment, if you like, has been pushed back onto firms. Is that significant?”

Anne Sammon: “So what's really significant is that these new rules and all the consultation documents have been described as extending the framework in relation to non-financial misconduct but the rules that have actually changed only refer to bullying and harassment, so we're not looking at the whole range of non-financial misconduct here. The FCA’s own response says that discrimination and victimisation won't be treated in the same way as bullying and harassment. So you still have to go through that exercise if you're not a bank of asking what was the role that somebody was doing, what activities were they involved in, if you're looking at discrimination and victimisation. So we've got this rather two-tier approach to different types of non-financial misconduct and I'm not sure that all firms are completely up to speed with that, given that the way in which these changes have been presented has been on the more general, this is about non-financial misconduct, whereas in reality, the conduct rule changes, at least, relate just to bullying and harassment.”

Joe Glavina: “What’s your key message to HR professionals watching this, Anne? Are there any practical action steps you advise them to take on the back of this news?”

Anne Sammon: “I think the first thing that we've seen a lot of clients panic about is because the FCA has clarified the position and said, if you're looking at issues of bullying and harassment or any other type of non-financial misconduct, and you're not a bank, you do have to go through that process of what was the role that the person was doing. A lot of firms may not have gone through that process. They may have taken a much more inclusive approach when they've been looking at conduct rule breaches, and they may just have looked at the conduct and then immediately gone to the conduct rules rather than checking whether or not the conduct rules actually apply in the particular scenario. So the first thing that we've seen from a lot of firms is a bit of panic around do we now need to go through and do an audit of all the decisions that we've reached on the conduct rules to date to check that we've been applying them correctly? And the answer, which I suspect many will be happy about, is, no, you don't have to do that kind of audit, but if something comes to light where you realize that the wrong approach has been taken, you do need to address it. So where might that happen? For example, if you were to get a regulatory reference request from a former employee, and you realise, as part of that, considering that request, that you've misjudged a conduct rule situation, that's where you do then have to go in and take steps to try and rectify that, and that might be updating your records to make sure that it isn't recorded as a conduct rule breach but also thinking about the notifications that you might already have made to the FCA about conduct rule breaches and whether or not you need to correct those.”

Joe Glavina: “I know you’re talking to a lot of clients about this issue, Anne. What are you saying to them? What help are they wanting from you?”

Anne Sammon: “So lots of clients are asking for advice around this. I think there's that piece about what do we do about decisions that we're not sure we made the right decision on, so we're helping guide them through whether or not decisions that they've made previously, that have now come to light, were the correct decisions. What I would say is, in 98% of those cases what we're saying is, yes, you did reach the correct decision and the challenge that the former employee has put shouldn't be successful. But the other thing that we're working with clients on is around, how might they look at conduct rule breaches going forward? Do their processes work? So for example, at the moment, what we've seen is a lot of clients will jump straight from disciplinary into that conduct rule decision-making process without considering, should they be applying the conduct rules and even with the changes on non-financial misconduct, you might be able to jump that step on bullying and harassment, if you're not a bank, but you won't be able to jump it on everything. So it's about making sure that those processes are actually reflecting the rules and that they still work.”

If your business is affected by these changes and you would like help to ensure you apply the FCA’s guidance correctly, then please do contact Anne – her details are on the screen. Alternatively, of course, you can contact your usual Pinsent Masons adviser.

- Link to FCA policy statement: Tackling non-financial misconduct in financial services