FCA Confirms New Conduct Rule for Non-Financial Misconduct in Non-Banks

Posted: 2025-07-07

The Financial Conduct Authority (FCA) has confirmed that bullying, harassment and similar non-financial misconduct will fall explicitly within the scope of its Conduct Rules for all Senior Managers and Certification Regime (SM&CR) authorised firms, including non-banks. The rule change, effective from 1 September 2026, aligns the regime for non-banks with that already in place for banks and aims to close gaps in regulatory oversight.

Why the FCA is Making This Change

This development stems from the FCA’s wider effort to improve culture across financial services, recognising that poor conduct often arises in environments where non-financial misconduct is tolerated. The proposals follow a strong industry response to the FCA’s earlier diversity and inclusion consultation (CP23/20), with 80% of respondents supporting greater regulatory clarity on non-financial misconduct. According to the FCA, serious non-financial misconduct—such as workplace bullying or harassment—can “undermine performance, damage growth and enable financial misconduct.”

The rule change focuses on the FCA’s Code of Conduct (COCON) sourcebook, amending the current scope for non-banks to include serious non-financial misconduct directed at colleagues. The FCA emphasised that the changes do not apply to private conduct and are distinct from employment law, though they are intended to complement statutory protections such as those under the Equality Act 2010.

Key Takeaways

• Rule change confirmed: From 1 September 2026, serious non-financial misconduct such as bullying, harassment and violence will constitute a potential breach of COCON in non-banking firms, aligning expectations with the treatment in banks. The rule applies only to workplace conduct and not to an individual’s private life, though non-financial misconduct outside work may still be relevant when assessing fitness and propriety under the FIT sourcebook.
• Guidance under consultation: The FCA is consulting on whether to issue additional Handbook guidance to help firms assess whether misconduct breaches Conduct Rules or affects fitness and propriety. This includes draft examples and clarification of factors such as the seriousness of the conduct and whether the subject of the misconduct felt their dignity had been violated and whether that perception was reasonable.
• Regulatory references clarified: The FCA reiterated that non-financial misconduct can be disclosed in regulatory references where it is relevant to fitness and propriety, even if it falls outside the scope of COCON. However, not all internal disciplinary matters will need to be reported—firms must assess whether the conduct is serious and relevant.
• Cost implications reduced: The FCA revised its earlier cost estimates downwards, now forecasting implementation costs of £25 million and ongoing annual costs of £15 million for the rule change alone. If the proposed guidance is adopted, total costs could rise to £75 million (implementation) and £40 million (ongoing). The FCA believes that the benefits—such as improved workplace culture, greater consistency and more robust action on misconduct—outweigh these costs.
• Regulatory objectives supported: The FCA argues the changes support all three of its statutory operational objectives, including protecting consumers and enhancing market integrity. The initiative also aims to prevent ‘rolling bad apples’—individuals who move between firms despite serious misconduct allegations.
• Scope of conduct clarified: The rule will apply only where misconduct is directed at a colleague within the firm’s SM&CR financial activities. It does not extend to clients or to business conducted entirely outside the regulatory perimeter. Notably, the new rule will not apply retrospectively.

Next steps

Firms have until 10 September 2025 to respond to the FCA’s consultation on the accompanying guidance. Subject to feedback, the FCA aims to finalise and publish the guidance by the end of 2025, giving firms time to update policies and procedures ahead of the 1 September 2026 implementation deadline.

The FCA reminded firms of their duty under section 64B of FSMA to inform staff about the Conduct Rules and ensure they understand how the rules apply. The regulator also emphasised that while serious non-financial misconduct may increase the volume of reportable conduct breaches, a high number of incidents may indicate a healthy speak-up culture rather than poor firm conduct.