The FCA is updating its rules to better address non-financial misconduct (NFM) in non-banks, addressing a current discrepancy. Prior to this, banks were subject to broader conduct rules for NFM, while non-banks were considered for NFM in relation to its regulated financial activities.
This change brings more incidents into the scope of the Code of Conduct (COCON) rules.
The regulator is also consulting as to whether additional Handbook guidance is needed, including in firms’ application of the fitness and propriety (FIT) test.
This combined policy statement and consultation paper (CP25/18) cements misconduct such as bullying, (sexual and non-sexual) harassment and violence as a matter of regulatory concern. Misconduct like these are also an obvious sign of a failing culture within a firm.[1]
The aligned rules will result in more consistency across the financial sector, as the publication will apply to all Financial Services and Markets Act 2000 (FSMA) firms with a Part 4A permission and staff in those firms who are subject to the regulator’s Code of Conduct (COCON).
When?
The new rule amending the scope of COCON in non-banks applies from 1 September 2026. For the additional guidance in relation to COCON and FIT, firms have until 10 September 2025 to provide their feedback.
What?
The new COCON rule, as suggested by the FCA, is a clarification of its existing position and does not extend to conduct in an individual’s private or personal life, although such conduct should nevertheless be disclosed if they are material to an assessment of fitness and propriety.
Amendments to the Code of Conduct
- Non-financial misconduct will be a conduct issue under COCON if it
- (i) has the purpose or effect of violating an individual’s dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment, or
- (ii) involves violence towards an individual.
- The new rule applies specifically to misconduct between colleagues, which includes employees of group companies and contractors.
- Work-related misconduct towards clients and business contacts could fall within the scope of the existing rules too, such as misusing the assets of a client, or maliciously sabotaging a firm’s information technology systems.
Background
These changes follow a consultation paper that was released in September 2023, proposing a new framework on diversity and inclusion in the financial sector (CP23/20). Earlier this year, the regulator announced that they have no plans to take the work further, except for its proposals on NFM.
Dropping D&I
The decision to drop the wider diversity and inclusion data reporting proposals may result in a more targeted and less burdensome framework.[2] Cases and behaviours of NFM also may disproportionately affect underrepresented groups, and improved reporting and response mechanisms can create safer environments.
However, it’s important to note that firms committed to diversity and inclusion now must independently maintain their efforts. The current focus on NFM provides a foundation for safer workplaces by preventing the most egregious behaviours, however doesn’t replace the need for systemic changes that may be required for material improvements in diversity.
Related survey on NFM and culture
The guidance follows a recent survey done on NFM and culture, which found that firms generally lack proper processes for handling misconduct. In cases where misconduct was reported, it often did not result in disciplinary action, while cases resulting in changes to remuneration and regulatory sanctions were even rarer.
For more information about the survey, we have previously written about its findings in detail in a separate article: “The serious issue of non-financial misconduct in financial services and the regulator’s precarious role”.
The updated guidance hopes to prevent “bad apples” from moving firms and continuing to operate, as failing to address misconduct would proliferate wrongdoing.
Cultivating healthy culture can also prevent consumer harm, attract talent, and foster innovation; all of which are aligned with the FCA’s objectives.
Looking forward
This guidance has been eagerly awaited and should equip firms with more clarity to determine next steps in complex cases.[3] NFM is a core cultural and risk issue, and it is not only for firms to consider specific processes for the reporting and management of NFM but also to improve its overall culture.
[1] https://www.fca.org.uk/publication/consultation/cp25-18.pdf
[2] https://www.steel-eye.com/news/an-in-depth-walkthrough-of-the-fcas-non-financial-misconduct-nfm-policy-statement-and-consultation-paper-cp25/18?utm_source=chatgpt.com#foreword-page-4-2
[3] https://www.lw.com/admin/upload/SiteAttachments/UK-Financial-Conduct-Authority-Publishes-Results-of-Non-Financial-Misconduct-Survey.pdf
