Tackling Non-Financial Misconduct in the Workplace: New FCA Rule and Guidance Now in Force

The UK Financial Conduct Authority’s new rule and guidance on serious work-related misconduct came into force on 1 September 2026, expanding how non-financial misconduct is addressed at non-banking firms. Affected firms should review their policies, reporting, fitness and propriety assessments, and regulatory references in light of the new framework.

The UK Financial Conduct Authority’s (FCA’s) rule was confirmed in July 2025 and brings serious work-related misconduct more clearly within the scope of the Code of Conduct (COCON) for non-banking firms. The final guidance, published in December 2025, explains how non-financial misconduct (NFM) should be assessed under COCON and the Fit and Proper Test for Employees and Senior Personnel (FIT). The FCA has indicated that its policy-development work on NFM is now complete and that its focus will turn to how firms address NFM in practice.

These measures arrive almost three years after the FCA previously consulted on NFM and proposed a new regulatory framework on diversity and inclusion (D&I) in the financial sector. Whilst it was announced in March 2025 that this D&I framework would not be carried forward, the FCA retained many of its NFM proposals, and this remains a topic of significant focus for regulators.

THE NEW RULE & SCOPE

Since 1 September 2026, COCON has been amended to include a new rule expanding its scope for non-banking firms in relation to serious work-related NFM. This new rule, COCON 1.1.7FR, more closely aligns the scope of COCON for non-banks with that previously applicable to banks, promoting consistency across firms subject to the Senior Managers and Certification Regime (SMCR).

The type of conduct to which this new rule applies is “unwanted conduct” towards an individual (B) that

• has the purpose or effect of violating the dignity of B;
• has the purpose or effect of creating an intimidating, hostile, degrading, humiliating or offensive environment for B; or
• is violent towards B.

This description is similar to the definition of harassment under the Equality Act 2010, but it need not relate to a protected characteristic. The rule applies only where the conduct is sufficiently serious, and the guidance sets out factors relevant to seriousness. Misconduct is within scope of this expanded regime if it occurs in the relevant part of the firm’s business and in a wide range of circumstances, including when directed towards a fellow employee of the same firm or member of the same group or an individual who provides services to the firm or a member of its group. Conduct would be out of scope if neither individual worked in the financial services part of the business at all.

The new rule took effect from 1 September 2026 and does not apply retrospectively. COCON does not cover conduct relating to an individual’s private or personal life. However, conduct occurring outside the physical workplace may still be sufficiently connected to work to fall within COCON, and genuinely private conduct may separately be relevant under FIT.

FCA GUIDANCE

The FCA’s accompanying guidance on COCON and FIT is intended to enable SMCR firms to interpret and apply the conduct rules more consistently and to clarify statutory and FCA requirements for fitness and propriety.

Guidance – NFM & Individual Conduct Rules

The guidance clarifies that “harassment of a fellow member of the workforce” is an example of behaviour that may breach either Conduct Rule 1 or 2. The further guidance on each rule is as follows:

Individual Conduct Rule 1 – Acting with Integrity

Once NFM falls within the scope of COCON, it may amount to a breach of this rule if it involves a lack of integrity and is of sufficient seriousness. The guidance provides that only deliberate or reckless misconduct or turning a blind eye would meet the threshold required to be considered a breach of Rule 1. Any unreasonable belief that the conduct is justified may itself show a lack of integrity.

Individual Conduct Rule 2 – Acting with Due Skill, Care, and Diligence

The guidance recognises that conduct excluded from Rule 1 may instead fall under Rule 2, which is relevant where misconduct involves a lack of due skill, care, and diligence. The conduct of a manager could constitute a breach of this rule if it amounts to a failure to take reasonable steps to prevent harassment and other forms of misconduct. However, a manager will not be in breach if they have acted reasonably, and the guidance recognises a number of reasonable courses of action. In assessing reasonableness, the extent to which any limits or constraints prevented the manager in question from taking a reasonable course of action, for example, if there are constraints on their ability to act, such as if the firm’s HR function deals with allegations of misconduct, will be taken into account.

Guidance – NFM & Fitness and Propriety Assessments

The extent of conduct covered by the FIT assessment is broader than that considered in scope by the COCON guidance.

The guidance sets out further detail on when misconduct will be relevant as part of a FIT test and the factors that should be considered. This includes the following:

• Clarification that serious NFM, even if it occurs outside the workplace in an individual’s personal life and lacks sufficient connection to SMCR activities or the firm’s activities more generally, may be relevant to an employee’s fitness and propriety assessment
• Guidance that conduct in an individual’s personal or private life may be considered relevant if it demonstrates a willingness to disregard ethical or legal obligations, abuse a position of trust, exploit the vulnerabilities of others, and/or if it is sufficiently serious such that public confidence in the regulatory system would be undermined, even if there is little or no risk of it being repeated at work
  • These are alternative bases for relevance: where the assessment instead turns on the risk of future misconduct, that risk must be material rather than remote or speculative
• Firms need not generally monitor the private lives of individuals subject to FIT and need only look into private conduct where there is good reason to do so
  • Where social media activity (including on messaging apps) comes to a firm’s attention, it may be relevant if it indicates a material risk that the individual will breach the requirements and standards of the regulatory system

KEY CONSIDERATIONS & NEXT STEPS FOR EMPLOYERS

Now that the new rule and guidance are in force, firms should ensure that their approach reflects the FCA’s revised framework. The guidance notes that firms should review whether they need to update their approach to staff policies, conduct breach reporting, fit and proper assessments, and regulatory references. It also states that firms do not need to

• carry out retrospective analysis to check whether they correctly determined past conduct rule breaches;
• revise past fitness and propriety assessments;
• monitor employees’ private lives or social media accounts;
• investigate allegations about employees’ private lives if they are trivial, implausible, or irrelevant; or
• do anything contrary to privacy, employment, or other relevant law.

Therefore, practical steps for firms could include the following:

• Policies: Reviewing and updating existing policies and approaches; this includes clearly identifying what constitutes NFM in line with the FCA’s guidance and ensuring policies are sufficiently robust and responsive in the event of any breaches
• Training: Updating staff training and communication to clarify the types of conduct which are of regulatory concern
• Analysis: Ensuring that teams across the business work together to analyse the COCON, FIT, regulatory reporting, and regulatory reference implications of each NFM case
• Records: Reviewing and considering the way in which records of reported NFM are kept, how reported NFM is addressed, and the rationale for action taken in response to it

HOW WE CAN HELP

Our lawyers stand ready to assist employers in reviewing and updating their approach in relation to these matters, including advising on how policies can be applied across their workforce.