FCA’s Consultation on Tackling Non-Financial Misconduct

On 2 July 2025, the FCA published its Consultation Paper and Policy Statement (CP25/18) on tackling non-financial misconduct in the financial services sector. The Consultation Paper follows the FCA’s consultation in 2023 (CP23/20) which proposed broader reforms in relation to diversity and inclusion and non-financial misconduct. While the FCA confirmed in March 2025 that it would not be taking forward the D&I related reforms, it made clear that it would continue to prioritise its work to tackle non-financial misconduct (NFM). CP25/18 builds on CP23/20 and feedback received on those proposals. It confirms the FCA’s final NFM rules and extends those rules to non-banks, and consults on draft guidance to support firms in applying its NFM rules consistently, to ensure that serious cases of bullying, harassment, and similar misconduct are treated as potential breaches of FCA rules across the sector. The consultation closes on 10 September 2025.

Policy Statement

Extension of NFM rules to include non-banks

Currently the scope of COCON is restricted (except in the case of banks) to regulated activities. The Policy Statement expands the scope of its rules to non-banks, which represents around 37,000 additional firms, from 1 September 2026 (and not with retrospective effect). The aim is to align the rules for banks and non-banks for cases of serious NFM, to drive consistency of approach and enable robust action in order to deter ‘rolling bad apples’.

In response to feedback from CP23/20, the FCA has revised the wording of the new rule to align more closely with employment law and in particular the Equality Act 2010. In addition, the FCA has framed the new rule to cover a wider range of workplace misconduct, rather than limiting it to conduct relating to a 'relevant protected characteristic'. The Consultation Paper contains flowcharts setting out (i) general considerations for identifying and reporting a conduct rule breach and (ii) additional factors for identifying whether NFM falls within the new rule.

Key Proposals for Consultation

The Consultation Paper sets out proposals for potential new Handbook guidance in the Code of Conduct (COCON) and the Fit and Proper Test for Employees and Senior Personnel (FIT), reflecting feedback on CP23/20. The FCA's proposals aim to make it easier for SM&CR firms to interpret and consistently apply COCON, and to clarify statutory and FCA requirements for fitness and propriety. The FCA has made it clear that it will only take the guidance forward if there is clear support for doing so.

1. COCON

Employment law alignment

The draft guidance reduces the risk of unfair outcomes by more clearly aligning it with employment law, and emphasises that it is always necessary to take account of all the circumstances of the case. Guidance has also been added on the need to consider both subjective and objective factors in cases of NFM (reflective of the approach to complaints of harassment under the Equality Act 2010), particularly two factors that will always be relevant when deciding whether conduct has had the proscribed effect set out in the new rule: (i) the perception of the subject of the misconduct, and (ii) whether it was reasonable for the conduct to have had that effect.

Additional guidance and examples

The FCA has updated the guidance consulted on in CP23/20 with new material and additional examples, which cover:

• The scope of COCON, with examples of scenarios illustrating the boundary between work and private or personal life.
• Examples to help illustrate when conduct is outside of a firm’s ‘SMCR financial activities’.
• An example of how NFM may be outside the scope of COCON because it only relates to a non-financial services business of a firm.
• Guidance on the distinction between breaches of Individual Conduct Rule 1 (integrity) and Rule 2 (due skill, care and diligence).
• Material about the factors for determining whether NFM is serious enough to amount to a conduct rule breach.
• Examples of reasonable steps for managers. The draft guidance makes clear that a manager should try to prevent harassment and other misconduct and will not be in breach of Individual Conduct Rule 2 if they have acted reasonably (for example by intervening to prevent harassment and other misconduct where the manager knows (or ought to know) about it). Examples of conduct by a manager that would breach Individual Conduct Rule 2 include failing to take reasonable steps to protect staff against harassment and other misconduct and failing to take complaints about harassment and other misconduct seriously.  

The FCA has included a detailed table in the draft COCON 1.3.7G to help firms determine when conduct is likely to fall within the scope of COCON, particularly in relation to the boundary between work-related and private or personal contexts which can be difficult to navigate in practice.

Use of terminologies: ‘serious’ and ‘significant’

The FCA clarifies that its use of the term 'serious' misconduct in the new rule is to ensure that minor incidents of poor workplace behaviour are not brought unnecessarily within the scope of COCON. The requirement for seriousness is consistent with the effect of the harassment provisions in the Equality Act 2010 which refer to violating a person’s dignity and creating an intimidating, hostile, degrading, humiliating or offensive environment for someone. The Consultation Paper makes clear that there is no conflict between applying the FCA’s rules and a firm’s internal disciplinary procedures for lower level misconduct. It also explains that the revised guidance would make it clear that seriousness is not the deciding or distinguishing factor in determining whether NFM is a breach of Individual Conduct Rule 1 or Rule 2. In line with regulatory law, only deliberate or reckless misconduct is considered a breach of Rule 1 and, in the absence of those factors, NFM is likely to be a breach of Rule 2.

To address potential confusion about the use of ‘serious’ and ‘significant’ in COCON and other parts of the Handbook, the FCA has clarified that:

• use of ‘serious’ means that the NFM has to have a serious negative effect to amount to a potential rule breach; and
• use of ‘significance’ (used in SUP 15.3.11R) is to decide whether a rule breach should be reported to the FCA immediately, and SUP 15.3.12G provides guidance on how to determine significance. Nevertheless, this determination has no bearing on whether separate notification is required under SUP 15.11.

2. FIT

The draft guidance provides a more detailed explanation of how NFM forms part of FIT.

NFM in private life

The draft guidance would clarify that when assessing a person’s fitness and propriety and whether wrongdoing in private life has taken place, a firm will normally rely on formal findings, such as criminal convictions. The FCA does not expect firms to monitor their employees' private lives to identify anything that is relevant to fitness. However, when a firm becomes aware of information about a person’s private life that would be relevant to an assessment of fitness and propriety, the firm should consider what steps it can reasonably take to assess the possible impact such as asking them for an explanation.

NFM on social media

The draft guidance would make it clear that, in principle, a person can lawfully express in their private or personal life their views on social media, even if those views are controversial or offensive and even if work colleagues are upset by those views, without calling into question their fitness and propriety. However, if someone’s social media activity indicates a real risk that they will breach regulatory requirements and standards (such as threatening violence or involvement in criminal activities), then it will be relevant to their fitness and propriety.

The Consultation Paper also proposes other changes, such as replacing subjective terms with neutral language for consistent application of standards, along with additional examples of relevant misconduct, both inside and outside work.

COND and SYSC Proposals

The FCA has stated that it will not proceed with any amendments to the Threshold Conditions (COND) and Senior Management Arrangements, Systems and Controls (SYSC) sourcebooks on the relevance of NFM and discriminatory practices to the FCA’s assessment of a firm’s suitability to undertake regulated activities and whether to disclose NFM at work or in private life in a regulatory reference respectively.

Comments

The Consultation Paper underscores the FCA’s ongoing commitment to drive meaningful cultural change within the financial services sector. The proposals make clear that the FCA views NFM, encompassing behaviours such as bullying, harassment, and violence, as a core regulatory concern, not simply an internal human resources or employment law issue. This approach reflects the FCA’s broader focus on the importance of building and maintaining healthy firm cultures, and, ultimately, to achieving better outcomes for consumers and markets.

Firms should acknowledge that the FCA’s expectations in this area are high, and the supervisory and enforcement focus will continue to be firmly on culture, as highlighted in Emily Shepperd’s speech in February 2025. As the implementation date approaches, firms should prioritise reviewing and updating their policies, training, and reporting mechanisms, ensuring that robust processes are in place to prevent and address NFM. Senior management must lead by example, demonstrating a clear commitment to fostering inclusive and respectful workplaces.

Next Steps

The consultation will be open for comments until 10 September 2025. The FCA then plans to review the feedback and set out its final regulatory approach before the end of 2025.

Article co-authored by Rowena Lee, a trainee solicitor in the Financial Services Regulatory Team at CMS.