UK FCA Sharpens Focus on Culture: Expanding the Reach of Non-Financial Misconduct Regulation

In a move signaling a stronger stance on workplace culture, the UK Financial Conduct Authority (FCA) published on 2 July 2025 a policy statement and consultation paper (CP25/18) on tackling non-financial misconduct (NFM) in financial services, following its September 2023 consultation on NFM and Diversity and Inclusion (CP23/20).

The publication sets out reforms applicable to all FCA-authorised firms and staff in those firms who are subject to the FCA’s Code of Conduct sourcebook (COCON), effectively capturing all non-bank firms subject to the Senior Managers and Certification Regime, including investment firms, fund managers, and insurers.

Broadly, the publication:

1. confirms final rules on NFM for non-banks, aligning the position of non-banks with that of banks (that are subject to existing NFM rules)
2. proposes guidance on COCON and the Fit and Proper test for Employees and Senior Personnel (FIT)

Together, these developments reflect a clear message: the FCA views NFM — such as bullying, harassment, and violent workplace behaviours — as integral to the assessment of individuals’ fitness and propriety and to the integrity of regulated firms as a whole.

Policy statement: new COCON rule

Under new rules proposed in COCON, NFM — broadly, bullying, harassment, and violence — will constitute a conduct breach in a broader range of circumstances. Specifically, the FCA has clarified that this kind of misconduct will be captured where a member of a firm’s conduct rules staff engages in behaviour

• towards another individual who is, broadly, an employee of the firm, its group, or one of its service providers
• which is unwanted conduct that
  • has the purpose or effect of violating that person’s dignity;
  • has the purpose or effect of creating an intimidating, hostile, degrading, humiliating, or offensive environment; or
  • is violent in nature.

While the rule widens the scope of COCON to cover NFM against colleagues, the FCA also notes that under other forms of work-related conduct (such as misconduct towards clients or business contacts) may still amount to a breach of COCON under the existing scope rules.

The rule will apply to non-banks from 1 September 2026, which will allow the FCA time to finalise any accompanying guidance before the new rule comes into effect.

From a firm compliance perspective, the two most significant practical consequences of the new rules will be that firms will be required to

- identify and report NFM in the firm’s conduct rules reporting (REP008 returns)
- consider whether NFM needs to be disclosed in regulatory references requested from the firm

On breach reporting, the FCA has noted it expects the rule change to lead to an increase in firm notifications for NFM, though it is not setting expectations for the number of such rule breaches reported to it.

Proposals for consultation: additional guidance in COCON and FIT

The FCA is consulting on new Handbook guidance in COCON and FIT to (i) assist firms with interpreting and applying the conduct rules and (ii) clarify statutory and FCA requirements for fitness and propriety. The draft guidance, set out in CP25/18, builds on the earlier consultation (CP23/20) and contains new material and additional examples, including scenarios outlining the distinction between work and private life.

It also contains more detail on how firms should have regard to NFM when assessing whether an individual is fit and proper to perform their role and clarifies that NFM outside the workplace may be relevant to fit and proper assessments. While the proposed guidance makes clear that firms are not expected to actively monitor employees’ private lives or online behaviour, if relevant information surfaces, for example, via social media, firms should assess whether it affects the individual’s fitness and propriety.

The FCA also stresses that not all misconduct will render a person unfit. Firms are expected to take a proportionate approach, considering factors such as the seriousness of the behaviour, whether it was isolated or repeated, the time elapsed, and any evidence of rehabilitation.

The consultation on the draft guidance will close on 10 September 2025, after which the FCA plans to publish its final regulatory approach by the end of 2025.

Proposals not being taken forward

The FCA has confirmed that it will not proceed with certain amendments proposed in CP23/20, notably

- its proposed extension of the guidance in the Threshold Conditions sourcebook to make clear that NFM and discriminatory practices in firms affect a firm’s suitability to carry out regulated activities
- proposed updates to the guidance around regulatory references in the Senior Management Arrangements, Systems and Controls sourcebook to make clear that it might be necessary to provide information on NFM or misconduct outside work to a firm requesting a reference (on the basis that the FCA considers the existing rules and guidance to be sufficiently clear already that such information may be necessary)

Next steps for firms

Firms may wish to consider the following next steps:

• Monitor the FCA’s publication of finalised Handbook guidance, which is expected by the end of 2025.
• Review and update internal policies and procedures to reflect the new COCON rule and any finalised guidance, ensuring full compliance by 1 September 2026.
• Ensure that conduct breach reporting processes are updated to reflect the new NFM rules.
• Ensure that regulatory references processes are updated to include consideration of NFM.
• Ensure that conduct rules staff are informed of the applicable rules and receive clear, practical guidance on how these apply to their roles. Firms should take all reasonable steps to promote understanding. This includes embedding the rules into onboarding, offering targeted training, and providing regular refreshers to reinforce expectations over time.