The Financial Conduct Authority has repeatedly stated that it considers there is a link between poor market conduct or poor consumer service, and a failed internal culture within a firm. In the FCA's own words: “One of the clearest warning signs of a failing culture is non-financial misconduct – behaviours such as bullying and sexual harassment – going unchallenged. Failure to tackle toxic behaviours drives away good people, prevents staff from speaking up and undermines performance. It damages growth and enables financial misconduct”.
Banks are already subject to specific FCA requirements in relation to non-financial misconduct. The FCA has confirmed that from 1 September 2026, non-banks carrying out Part IVA regulated activities (around 37,000 firms) will be subject to similar rules. The new regime will include:
- an amendment to the Conduct Rules setting out when non-financial misconduct will be treated as being within the scope of the Conduct Rules
- new guidance on when non-financial misconduct will amount to a breach of the Conduct Rules
- new guidance on when non-financial misconduct will affect an individual's fitness and propriety to carry out a regulated role.
When will non-financial misconduct (NFM) be within the scope of the Conduct Rules for non-banks?
NFM will be within the scope of the Conduct Rules if it occurs within a part of the business which carries out regulated activities or financial activities covered by the Senior Managers and Certification Regime. This is broader than the current rule, which covers NFM which is part of, or for the purposes of, the firm's SMRC financial activity. Under the new rule, the connection between the NFM and the firm's regulated activities may therefore be somewhat looser in order for it to be within the scope of the Conduct Rules; the focus will now be on the role of the individuals and business unit involved.
What type of conduct is covered?
The new rule covers unwanted conduct towards a colleague (broadly defined to include contractors) which is violent towards them, or has the purpose or effect of violating their dignity or causing an intimidating, hostile, degrading, humiliating or offensive environment for them. This definition is based on the Equality Act definition of harassment, but is not limited to harassment connected with a protected characteristic.
It is intended only to cover conduct at work, not conduct in an employee's personal life, and the FCA's sourcebook sets out the factors relevant to determining whether the conduct is within this scope (e.g. work-related social events). The sourcebook also sets out similar factors to consider in relation to social media posts.
NFM within this definition may amount to a breach of Rule 1 (requirement to act with integrity) or Rule 2 (requirement to act with due care, skill and diligence). The FCA's guidance makes it clear that it is not only the perpetrator who may be in breach, but managers who allow such conduct to occur, whether by failing to create appropriate systems to prevent such behaviour or by failing to intervene when they are aware of it. Similarly, retaliation against whistle-blowers is likely to amount to a breach of the Conduct Rules. The FCA has also provided guidance on when NFM will be regarded as “serious” , including whether it is part of a pattern of behaviour and analysing the impact on the victim.
Other forms of NFM may amount to a breach of the existing Conduct Rules if the conduct was for the purposes of or was part of the firm's SMRC financial activities, and whether or not the NFM amounts to a breach of the Conduct Rules it may in any event be relevant to fitness and propriety. Compliance and legal teams will need to assess these issues separately and carefully.
When will NFM be relevant to fitness and propriety?
As one would expect, a broader range of misconduct is relevant to the assessment of fitness and propriety - it is not limited to conduct which breaches the Conduct Rules. The new guidance makes it explicit that (perhaps unsurprisingly) conduct which is violent, dishonest, shows a lack of integrity or involves sexual offences or hate crimes will always be relevant to fitness and propriety. Further, conduct in an individual's private life which shows a willingness to disregard the law/ethical requirements, exploit others, abuse a position of trust or undermine public confidence in financial regulation or the FCA's objectives, is likely to be relevant to this assessment. Again, when investigating allegations of misconduct, employers will need to look carefully at these factors when determining the impact on fitness and propriety and whether reporting obligations are engaged.
What does this mean for FCA-regulated employers?
When allegations of non-financial misconduct are made within FCA-regulated firms, they will need to consider several different angles, including:
- potential breaches of the Conduct Rules by the alleged perpetrator and others and associated reporting duties;
- impact on fitness and propriety for senior managers and certified staff;
- potential breaches of internal policies and employment contracts, and the consequences for ongoing employment and remuneration (including bonus clawback);
- governance and culture issues; and
- potential claims by the alleged victims.
Any investigation will need to be carried out with an eye to these different aspects, and with input both from HR and compliance teams. Given the legal and regulatory complexity, as well as the potential reputational damage, firms should consider the possibility of engaging independent third parties to carry out the investigation, to ensure that these difference elements are examined carefully and systematically. The FCA's stance is clear: culture is key, and poor conduct cannot be swept under the carpet.
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