FCA Overhauls Rules on Non-Financial Misconduct in Financial Services

The Financial Conduct Authority (FCA) has published a crucial consultation paper, setting out proposals to clarify and strengthen its approach to non-financial misconduct in financial services. The new measures are designed to align non-financial misconduct standards across the sector, bringing non-bank firms in line with the regulatory framework that governs banks. This effort, part of the regulator's broader cultural reform agenda, aims to tackle workplace misconduct such as bullying, harassment, and other serious behavioural failings, making them regulatory concerns on par with financial dishonesty or incompetence.

The FCA Consultation on Workplace Misconduct: What Does It Mean?

The consultation, which was launched on July 2, builds upon previous proposals and incorporates feedback from stakeholders across the financial services sector, including industry groups, legal experts, and consumer bodies. The proposed changes aim to harmonize conduct rules, ensuring that non-bank firms, which were previously outside the scope of the Senior Managers and Certification Regime (SMCR) and the Code of Conduct (COCON), are now subject to similar expectations. This will create a more consistent regulatory environment where COCON conduct rules in financial services can be applied more broadly, improving standards of behaviour in firms across the sector.

Non-financial Misconduct in Financial Services: A Serious Regulatory Concern

The FCA's new approach to non-financial misconduct reflects its belief that behavioural failings, even if not directly linked to financial activities, can significantly undermine trust in financial institutions. Such misconduct, the FCA argues, can damage internal culture, weaken governance, and erode public confidence in a firm's integrity. The regulator acknowledges that while financial misconduct is damaging to the sector, non-financial misconduct poses an equally serious risk to an organisations ability to serve its customers fairly and maintain public trust.

Key Proposals: Extending COCON to Non-Bank Firms

One of the most significant changes proposed by the FCA is the extension of the COCON conduct rules in financial services to cover non-financial misconduct in non-bank firms starting from 1 September 2026. This extension will ensure that the conduct expectations for staff in non-bank firms align with the standards already in place for banks and insurers. The new rules will apply to staff behaviour in both professional and, in limited cases, personal contexts, emphasising the importance of workplace culture and personal dignity.

The proposals also aim to revise the guidance in the Fit and Proper Test for Employees and Senior Personnel (FIT), underscoring that behaviour inconsistent with inclusive, respectful conduct could call into question an individual‘s suitability for a regulated role. The FCA’s changes seek to reinforce that personal dignity and respectful behaviour are essential criteria for determining whether an individual meets the necessary standards to work in regulated financial roles.

Feedback and Concerns on the Proposed Guidance

Despite the positive steps towards strengthening conduct rules, not everyone within the industry is entirely supportive of the proposed changes. James Alleyne, a partner at Kingsley Napley, voiced his concerns, stating that the FCA's delay in publishing detailed guidance and its apparent watering down of earlier proposals may lead to uncertainty. According to Alleyne, this hesitation could undermine the regulators previously bold stance on non-financial misconduct.

Nevertheless, the FCA remains committed to refining its guidance. In response to concerns about the potential conflict between COCON conduct rules in financial services and employment and equality law, the regulator has amended its guidance to create a more balanced framework. This new approach ensures that misconduct will be evaluated in a way that considers whether an individuals dignity was violated and whether the perception of misconduct is reasonable.

Dignity in the Workplace: A New Standard of Assessment

One of the most contentious aspects of the FCA consultation was the issue of how to assess allegations of misconduct, especially in cases involving private conduct outside the workplace. The regulator has responded to these concerns by introducing additional clarity on how misconduct should be evaluated when it occurs outside the professional environment.

Under the new guidelines, firms will be required to consider whether the individual involved perceived that their dignity was violated and whether it was reasonable for that perception to arise. If there is no perception or no reasonable basis for one, the conduct will not be considered a breach of the COCON conduct rules in financial services.

The FCA‘s revised approach also includes specific examples to help firms understand when private conduct might be relevant to a professional environment. These examples are designed to help distinguish between personal and professional contexts, ensuring that private actions only fall under regulatory scrutiny if they have a significant impact on professional duties, workplace culture, or the public's trust in a firm’s integrity.

Private Lives and Employee Monitoring: What Does the FCA Expect?

Another issue that sparked considerable debate was the potential for the FCA to require firms to monitor employees' private lives or personal social media activity. Industry representatives were concerned about the overreach of such a measure, arguing that it could lead to privacy infringements and increase the burden on compliance teams.

The FCA has sought to allay these concerns by clarifying that it does not expect firms to actively monitor employees' private lives or social media activity. However, where off-duty conduct has a demonstrable impact on the individual‘s professional relationships, the firm’s culture, or public trust, it may still be relevant to assess whether it violates conduct standards. The regulator stressed that firms are only expected to evaluate behaviour that directly affects the firm, its employees, or clients.

Expected Benefits of the FCAs Proposed Changes

While the full impact of the proposed changes is difficult to measure, the FCA anticipates that they will lead to significant improvements in workplace culture. The new measures aim to create greater clarity for firms and individuals, ensuring that conduct expectations are applied consistently across the sector. This approach is designed to reduce the legal and operational risks associated with misinterpretation of misconduct regulations and to provide clearer guidance for firms in the financial services sector.

The FCAs hope is that the revised rules will help firms improve their internal cultures, ensure respectful conduct, and maintain high standards of integrity. In turn, these improvements should lead to more consistent regulatory outcomes, fostering a better environment for employees, clients, and the public.

Next Steps and Implementation Timeline

The FCA is inviting further comments on the consultation, with a deadline of 10 September. The regulator is particularly interested in whether the additional guidance provides sufficient clarity for firms to implement the new rules fairly and consistently. The final policy statement, incorporating feedback from the consultation, is expected in early 2026.

The extended COCON conduct rules in financial services will come into force on 1 September 2026. This timeline aligns with regular reporting cycles for conduct rule breaches, providing firms ample time to update their internal procedures, train staff, and ensure compliance with the new rules.

Conclusion: Strengthening Integrity in Financial Services

The FCAs consultation paper marks a significant step in reinforcing workplace integrity across the financial services sector. By aligning the rules on non-financial misconduct with those already governing financial misconduct, the FCA aims to create a more robust, transparent, and accountable regulatory environment. As the consultation progresses, financial services firms will need to ensure they are prepared for the changes, which are set to come into full effect by 2026.

About the Financial Conduct Authority (FCA)

The Financial Conduct Authority (FCA) is the regulatory body for the financial services sector in the UK. Its role is to protect consumers, enhance the integrity of the UKs financial system, and promote competition within the sector. The FCA is responsible for overseeing financial markets, ensuring that firms comply with regulations, and enforcing rules to maintain fairness and transparency in the industry.