Non-Financial Misconduct Under the Spotlight: FCA Issues Guidance

Background

In July 2025, the Financial Conduct Authority (the 'FCA') introduced a new rule on non-financial misconduct ('NFM'), confirming that serious misconduct such as bullying, harassment, and violence is a matter of regulatory concern. The FCA hopes the changes will empower firms to act against serious misconduct, promote consistency, raise behavioural standards across the industry, and clarify when NFM constitutes a breach of the rules.

Following the rule change, the FCA consulted on whether additional guidance was needed. Feedback was overwhelmingly positive, with 95% of respondents requesting further clarification. This guidance, now published as PS25/23, explains how firms should apply the rules and what factors to consider when assessing whether an individual is fit and proper for their role.

The new rule and guidance will take effect on 1 September 2026 and will not apply retrospectively.

What behaviour falls within scope?

The wording of the new rule in the FCA's Code of Conduct sourcebook ('COCON') at 1.1.7FR is as follows:

'The kind of conduct to which this rule applies as referred to is unwanted conduct of the following kinds in relation to an individual referred to (‘B’): 

(a) conduct that has the purpose or effect of: 

    (i) violating B’s dignity; or 

    (ii) creating an intimidating, hostile, degrading, humiliating or  offensive environment for B; or 

(b) conduct that is violent to B.'

The guidance explains that the definition broadly covers bullying, harassment, and violence.

The seriousness of the conduct is key: minor incidents of poor behaviour will not breach the rules. Firms retain discretion to assess seriousness, but the seriousness threshold aligns with that for harassment under the Equality Act. The guidance also outlines factors firms should consider when determining whether NFM is sufficiently serious to breach the rules.

Importantly, the rule does not extend COCON to cover other Equality Act prohibitions, such as discrimination or victimisation.

Changes to COCON

Historically, COCON’s scope for non-banks has been narrower, applying only to activities linked to regulated or SMCR financial functions. The new rule expands the scope of COCON to make bullying, harassment and similar behaviour between staff subject to the wider rules that apply to banks.

Key takeaways:

• NFM towards colleagues will now fall within scope when it relates to the performance of an individual’s role, not just for financial services activities.
• Conduct is in scope if either the perpetrator or subject deals with the firm’s financial services business. It is out of scope if both individuals work entirely outside such functions.
• Application varies by role and location. For example, COCON applies to conduct outside the UK only if it concerns an employee working for a UK firm in dealings with a UK client.

Changes to the Fit and Proper Test ('FIT')

The guidance confirms that NFM has a broader meaning under FIT, as firms and the FCA must consider all relevant matters when assessing honesty, integrity, and reputation. Conduct inside and outside the workplace may be relevant.

Key takeaways:

• Firms should investigate allegations case by case but are not expected to pursue trivial or implausible matters, or those which would be better handled by law enforcement.
• Conduct in private life is relevant if there is a material risk that it would breach regulatory requirements if repeated at work. The guidance gives violence or sexual misconduct as key examples.
• Conduct in private life which is unlikely to be repeated at work may still be relevant if it is so serious that there is a risk of it damaging public confidence in the industry.
• Criminal convictions may be especially relevant, particularly if a custodial sentence is imposed.
• Social media activity is treated consistently with other private conduct - lawful expression is permitted, but controversial views may still raise fitness concerns if they indicate a material compliance risk.
• Repeated minor breaches can signal disregard for compliance and thus may be relevant to FIT.

Overall impact of the new rule and guidance

In advance of the September 2026 implementation date, firms should review and update internal policies and procedures and consider providing training programmes to staff to ensure they understand the new requirements.

In its foreword to the new guidance, the FCA underscores the importance of trust in financial services and positions tackling NFM as central to enhancing the sector’s reputation and increasing market and consumer confidence. The FCA hopes these changes will advance equality in the workplace, improve workplace behaviour and reduce harassment and discrimination – objectives which are ambitious and should be welcomed.

However, firms should be conscious of the potential practical and cost implications of the new framework. The new rule and guidance are likely to increase the compliance burden and associated costs, particularly around investigating and monitoring potential breaches. 

Additionally, some may be disappointed by the absence of detailed case studies provided for in the guidance. The FCA largely rejected calls from the consultation to provide more concrete examples and case studies, emphasising that it cannot provide examples for every scenario and highlighting that firms remain primarily responsible for preventing and addressing NFM and determining breaches of COCON.

We will continue closely monitoring the implementation of these changes and reviewing the impact on our corporate and individual clients. 

If you require any assistance, please don’t hesitate to contact us.