Non-financial misconduct: what do expanded rules mean for Christmas parties?

As the festive season approaches, staff at FCA regulated firms will naturally be looking forward to Christmas parties and other work-related social events.

However, these occasions, often involving alcohol, relaxed boundaries, and informal interactions, can create an environment where behaviour may cross over into non-financial misconduct (NFM). This can result in potentially severe regulatory consequences for individuals under both the Conduct Rules and the Fit and Proper test for Employees and Senior Personnel (FIT).

The risks

The FCA has increasingly recognised NFM – a term that includes bullying, harassment, sexual misconduct, discrimination, and violent behaviour – as a regulatory issue that directly affects culture and trust in financial services. To address this, the regulator announced in July this year that it was introducing a new rule that makes serious NFM a potential breach of the Code of Conduct (COCON), even when it occurs outside formal regulated activities. This new rule, COCON 1.1.7FR, which will formally come into force on 1 September 2026, brings all Part 4A firms into line with banks, which have already been subject to similar requirements since the introduction of the Senior Managers and Certification (SMCR) regime in 2016.

Importantly, the FCA has clarified that misconduct occurring outside the physical office premises may still fall within COCON if it happens in a “work-related environment.” This means that inappropriate behaviour in a taxi en route to a Christmas event, harassment at a firm-sponsored dinner, or misconduct at an after-party could all be caught if the setting is connected to work.

NFM risks are not limited solely to COCON. Serious inappropriate behaviour at a Christmas party could also influence an individual’s fitness and propriety assessment made under the FIT rules. This is not a new policy – the FCA has long been clear that conduct outside the workplace can affect a FIT assessment. However, over the course of this year, the regulator has repeatedly restated its position, leaving no room for doubt that all such behaviour falls within its supervisory remit.

Finally, regulatory risks could also extend to Senior Managers who, although not themselves actively involved in NFM, are required under the SMCR to take “reasonable steps” to prevent, detect, and correct misconduct. Ignoring allegations, handling them inconsistently, or failing to escalate concerns can be seen as a breach of this duty, exposing them to personal accountability and regulatory sanctions.

What happens next?

If an employer identifies a breach of COCON or concerns under the FIT regime, it must take prompt and proportionate action. For COCON breaches, firms are required to investigate, document findings, and, where appropriate, report serious issues to the FCA.

Under FIT, the employer must assess whether the individual remains suitable for their role, considering honesty, integrity and competence.  This may include re-certification, role restrictions, or removal from position.

Employers must also ensure that regulatory references reflect substantiated breaches, maintain records, and demonstrate that governance and controls were sufficient to prevent and address misconduct.

The FCA emphasises that the threshold for regulatory intervention remains high. Not all lapses in judgement or interpersonal conflict justify a COCON breach or a fitness and propriety concern. Misconduct must be serious in nature or effect, and firms should consider context, recurrence, impact, and seniority when assessing incidents. Minor interpersonal disputes or personal disagreements will remain outside regulatory scope.

Conclusion

As Christmas parties approach, firms should set behavioural expectations in advance, making clear that workplace conduct standards apply from the moment staff begin travelling to the event through to any reasonably foreseeable post-event activities. Practical measures such as moderating alcohol, ensuring senior staff presence, arranging safe transport, and maintaining clear reporting channels can help mitigate risk.

Ultimately though, NFM is not just a matter for firms, it is a personal responsibility: individuals must be mindful that their behaviour, even outside the office, can have real regulatory consequences under both COCON and the FIT regime.

This article by Partner, Claire Cross was first published in People Management on 8th December 2025.