The FCA has issued a Consultation Paper proposing a series of changes aimed at strengthening the regulatory framework around non-financial misconduct (NFM) in the financial services sector. The Policy Statement provides a new rule (to come into force on 1 September 2026) that non-financial misconduct, such as bullying and harassment will apply to a broader range of entities. In addition, it provides for consultation on proposed guidance for employers. The proposals are part of the FCA’s broader commitment to fostering healthy firm cultures and improving conduct standards. In this blog post, we consider the implications of the new rules and proposed guidance from an employment law perspective. For a review of the Consultation Paper from our regulatory team please read their post New FCA Conduct Rule and Consultation on Non-Financial Misconduct Guidance | Global Regulation Tomorrow
Changes to the Conduct Rules
The Policy Statement includes a change to the FCA Code of Conduct (COCON) to make clear that NFM will extend to non-banks where it was previously limited to banks, so widening its scope.
The definition of misconduct has been amended to more closely align with the definition of harassment set out in the Equality Act 2010 (Eq Act 2010). However, as drafted, it is broader than the Eq Act 2010 definition in that it is not limited to protected characteristics. The definition means that it is conduct that has the purpose or effect of violating an individual’s dignity or creating an intimidating, hostile, degrading or humiliating or offensive environment for an individual, or conduct that is violent towards an individual.
Proposed guidance on clarifying the Role of Non-Financial Misconduct in Fitness and Propriety Assessments and COCON
The Paper also sets out that the FCA is proposing new Handbook guidance on how to assess non-financial misconduct and whether the misconduct is a breach of COCON as well as when it should be taken into account in assessing the fitness and propriety of certified staff. The FCA has set out that it will only take the guidance forward if there is clear support for it to do so.
The guidance will provide some assistance to employers in considering the factors for determining what amounts to NFM, the boundary between work and private life and whether it is of a serious nature to amount to a breach.
The FCA have amended their draft guidance to ensure that it aligns more closely with general employment law. For example, by making it clearer that when deciding whether the conduct has the effect set out in the new rule of violating an individual’s dignity etc, there are both subjective and objective factors to consider: the perception of the subject of the misconduct and whether it was reasonable for the conduct to have that effect.
The guidance will be amended to clarify what a firm should be doing to discover whether events outside work may be viewed as rendering an individual unfit to perform key roles in financial services. The FCA have pointed out that they would expect firms to normally rely on formal findings such as criminal convictions or the finding of a court or tribunal in assessing whether wrongdoing in private life has taken place.
The guidance will also make it clear that firms are not expected to monitor their employees’ private lives such as by using social media to identify anything that is relevant to an individual’s fitness. However, a firm may become aware of information about an individual’s private life that would, if substantiated, call into question an employee’s fitness. In considering this, employers should bear in mind an employee’s right to privacy and data protection legislation.
Employment law issues
In addition to any regulatory requirements that a firm may have, they should bear in mind the wider requirements from an employment law perspective.
In particular, firms must be aware of the duty on employers to take reasonable steps to prevent sexual harassment which came into force on 26 October 2024. The emphasis is on employers to identify risks and to prevent sexual harassment, rather than focusing on addressing harassment in a reactive way. Employers will therefore face significant legal and regulatory exposure if they fail to prevent or address non-financial misconduct, particularly sexual harassment. Inaction or reliance on reactive processes, such as grievances or whistleblowing, is no longer sufficient. Failure to take proactive steps could lead to tribunal claims and reputational damage, as well as regulatory sanctions.
The FCA has provided further examples of when conduct in an individual’s private life may fall within conduct in breach of COCON. It has included additional examples such as attendance of individuals at training and the after-work party. Employment lawyers have been considering the issue of conduct in private or personal life from an employment law perspective and the issues of balancing an employee’s right to a private life and right to free speech. Training of employees on what may be considered to be misconduct is important to show that the employer has taken reasonable steps to comply with their employment law obligations as well as to assist in clarifying the position from the regulatory perspective.
The FCA have included a new section on whether publication of material on a personal social media account could be relevant to a person’s fitness and propriety. It is clear that whether material published on a personal social media account has to be considered on a case-by-case basis. There have been a number of high-profile cases in the employment tribunal considering the right of an employee to express their views on social media and if a firm takes action against an employee in connection with social media posts, this may give rise to potential employment law claims. For example, an employee may be able to claim that they have been subject to a detriment as a result of their religious or philosophical belief. Firms should therefore ensure that HR and regulatory teams are aware of the matters that may arise and can deal with any such issues accordingly.
The consultation on the draft guidance will be open until 10 September 2025. If the FCA does publish Handbook guidance following the consultation it would aim to do so by the end of the year so that firms have sufficient time to update their processes and procedures.