The FCA and non-financial misconduct: Updated rules and guidance

The background

The FCA’s focus on non-financial misconduct (NFM) has been steadily increasing since 2018, when it first publicly recognised that unwelcome behaviours such as sexual harassment could fall within its regulatory remit.  The latest development came earlier this month, with the publication of a new FCA consultation paper, Tackling Non-Financial Misconduct in Financial Services (CP25/18).

CP25/18 serves two key purposes. Firstly, it introduces new rules, effective from 1 September 2026, that amend the Code of Conduct sourcebook (COCON) to clarify that NFM (such as bullying, harassment, and workplace violence), can fall within the scope of conduct rules for non-bank firms. Secondly, it seeks stakeholder feedback on proposed updates to the NFM guidance found in two FCA sourcebooks: COCON, and the Fit and Proper Test for Employees and Senior Personnel (FIT).

The FCA hopes that the proposed amendments will increase clarity and consistency for firms and individuals as to the Regulator’s expectations when assessing and addressing potential NFM.

Why the need for a rule change?

Under the current framework, COCON 1.1.7AR limits the application of the conduct rules for individuals working in non-bank firms.

However, the FCA notes that this creates an inconsistency between the regulatory treatment of banks and non-banks. Unlike non-bank firms, banks are not subject to the scope limitation set out in COCON 1.1.7AR, meaning their employees are more broadly accountable under the current conduct rules.

To address this disparity and bring regulated firms into alignment, the FCA is introducing a new rule, COCON 1.1.7FR.  This will extend the application of the conduct rules to certain types of serious workplace misconduct (bullying, harassment and violence), to individuals in both bank and non-bank firms. It will come into force on 1 September 2026 and will not apply retrospectively.

For the purposes of COCON, the FCA stresses that the rule change will only address workplace behaviour. Conduct that occurs in a person’s private or personal life is entirely outside of the rules.  This differs from the rules and guidance under FIT (which are dealt with below).

Clarifying COCON and FIT

In addition to broadening the COCON rules’ scope, CP25/18 includes a significant proposed revision of the existing guidance on NFM within both the COCON and FIT sourcebooks.  The aim of this rewrite is to support firms in more effectively interpreting and applying the relevant rules. It also seeks to clarify the standards governing fitness and propriety and help firms understand how NFM should be assessed within the FCA’s statutory framework.

In respect of COCON, the proposed redraft includes examples of scenarios illustrating the boundary between work and private life and provides guidance on the distinction between breaches of Individual Conduct Rules 1 (integrity) and 2 (due skill, care and diligence).   It also explains relevant factors for determining whether a case of NFM is serious enough to amount to a breach.

Managers may also be at risk of breaching Rule 2 by failing to take “reasonable steps” to protect staff from experiencing NFM. This would include failing to respond appropriately to serious NFM complaints, not treating complaints with sufficient seriousness, or neglecting to provide a safe environment for staff to raise concerns.

In respect of FIT, the FCA have always been clear that behaviour outside of the workplace, such as criminal convictions, can fall to be considered when making a decision on an individual’s fitness and propriety.

However, the FCA’s suggested new amendments to the FIT guidance would specifically state that acts in one’s private life involving NFM (e.g. violence or sexual misconduct) could be potentially relevant to the fitness and propriety assessment.

Further, the proposed guidance also states that repeated breaches of the law may signal an unwillingness (or inability) to comply with regulatory requirements and could therefore give rise to an issue under FIT.  For instance, a single minor offence, such as a one-off driving infraction, would not typically raise concerns, but a pattern of similar behaviour could be considered material to a person’s fitness and propriety.

In spite of this, the FCA is clear that firms are not expected to monitor their employees’ private lives to identify anything at all that could be relevant to FIT.  Nor is it suggesting that they routinely adjudicate on unproven allegations. Rather, the FCA foresees that the firm will normally rely on formal findings, such as criminal convictions or court findings, when assessing whether wrongdoing in private life has taken place.

Conclusion

At this stage, it is important to remember that the proposed changes to the COCON and FIT guidance are open for consultation until September. If there is clear support for the changes, we can expect to see the final guidance published towards the start of next year.

Firms are encouraged to review the draft proposals and think carefully as to how these could impact their current processes and procedures.

This article was first published in the Professional Adviser on 29 July 2025.