Non-financial misconduct: where are we now?

The changes to the Conduct Rules come into effect on 1 September 2026.

These changes do not apply retrospectively and the FCA has confirmed that there is no need to revisit prior breaches. It has also confirmed that it will consider whether any transitional guidance is needed, if and when the guidance comes into effect.

The FCA has asked for comments on whether the additional draft guidance is needed. We anticipate that most firms would prefer to have some guidance, even if there is some disagreement about whether the guidance should be more detailed or lighter touch. In any event, as it is highly likely that the FCA will develop a view on its own approach to non-financial misconduct, we anticipate that most firms would prefer to be working to common standards rather than operating in a vacuum.

The FCA received some criticism of its previous draft guidance because of its use of terms to describe non-financial misconduct such as “oppressive conduct causing serious alarm or distress”, which were not concepts commonly recognised in practice. The FCA has revised its approach and now proposes that the definitions of non-financial misconduct within the Conduct Rules should be aligned with employment law. That is certainly the case with harassment (although we note that there is no need for the harassment to be in relation to any protected characteristic, in contrast to the Equality Act 2010).

The FCA is also proposing a reasonableness test, such that if it is not objectively reasonable for an individual to claim that a colleague’s conduct violated dignity or created an intimidating or hostile environment, then it will not be misconduct for Conduct Rules purposes. The guidance leaves a window for employees to argue that it was not reasonable for a colleague to find their conduct intimidating or hostile. Employers are not used to applying this reasonableness test to allegations of harassment, as this is not a concept that is present in the Equality Act 2010 (which focuses on the subjective effect on the victim).

The draft guidance also describes the circumstances when behaviour that can be described as bullying will be in breach of the Conduct Rules.  As any employment lawyer will tell you, “bullying” is not a legal term – but it is an increasingly common complaint in the modern workplace.  Firms will have to develop a framework for separating out the wheat (bullying which warrants action under the Conduct Rules) from the chaff (complaints about bullying behaviour which are unmeritorious, trivial or otherwise not justified).  Firms will normally be well equipped to do this in an HR context because of the range of tools they have to deal with complaints of bullying (including informal action, mediation and coaching, as well as formal disciplinary action).  Employers may not turn to those tools so readily where an allegation of bullying is made which could trigger a regulatory sanction.  The FCA says there is no conflict between applying its rules and a firm’s ability to take appropriate measures for lower-level misconduct – but how does a firm determine whether bullying is serious or lower-level?  It would be an unfortunate consequence of this guidance if firms now felt that any allegation of bullying needed a formal investigation in order to assess whether it was serious.

The Conduct Rules are not relevant to an individual’s personal or private life. The guidance contains examples of when conduct outside the office (such as during social events organised by a firm, or when travelling on business) will nevertheless be regarding as within the scope of the Conduct Rules. Those are sensible and consistent with what most employers would expect.

The position is more complex when assessing the impact of non-financial misconduct on fitness and propriety.

An assessment of whether an individual is fit and proper is not limited to their conduct in carrying out work. The guidance is clear that a firm should also take account of behaviour outside work, if the conduct demonstrates a risk that the person might breach a regulatory standard, or might repeat the conduct in work, or generally might disregard ethical or legal obligations.

The FCA accepts that a firm cannot monitor private life and may have a limited ability to investigate conduct outside work. Nevertheless, the expectation is that it should consider what reasonable steps it can take to investigate. That is consistent with the approach most firms would want to take in any event, However, waiting for the outcome of a criminal process or employment tribunal, as the FCA suggests should normally be the case, is rarely going to be satisfactory because it presents a firm with the practical challenge of what it does with the employee until that finding is made. There may be many cases where the firm simply cannot make a determination for fit and proper purposes.

The new guidance relating to the responsibilities of managers may change the current approach. In this context, this means both Senior Managers holding Senior Management Functions within FCA-regulated firms and also small ‘m’ managers who are subject to the Conduct Rules.

In an employment context, it occasionally arises that misconduct within a team could also lead to disciplinary action against a manager with responsibility for that team on the basis that they failed to act to address misconduct, or otherwise condoned it.

The FCA is proposing guidance on the steps that managers should take to try and prevent harassment. There is a clear obligation on managers to prevent harassment and other misconduct. A failure to take reasonable steps to prevent harassment may amount to a breach of Conduct Rule 2 (the duty to act with due skill, care and diligence). For example, the FCA gives the example of failing to intervene where appropriate if the manager knows or should know of the misconduct or failing to operate the firm’s policies appropriately. That sets the bar for managers’ diligence on these matters at a high level – perhaps higher than firms might expect.

Social media receives particular attention in the guidance, but the FCA acknowledges that it cannot give a definitive answer to the question of whether COCON would apply in every circumstance. It gives the example of a message posted on a personal social media account by an employee and a range of factors for determining whether that publication would be breach COCON, including whether the post is directed at a fellow employee, whether it is part of a course of conduct in the workplace and other factors. This will clearly give rise to some difficult and nuanced decisions for employers.

The FCA says that it will make it clear that a person can lawfully express views on social media in their private life, even if those views are offensive, without calling their fitness and propriety into question, unless the posts demonstrate a risk that the person will breach the requirements of the regulatory system. There is undoubtedly a grey area here if posts stray into territory where they might be seen to be disregarding ethical obligations or exploiting vulnerabilities of others. For example, would a post that colleagues regarded as sexist or misogynistic demonstrate “a willingness to disregard ethical or legal obligations” under equality law and how would a firm make that determination?

The FCA has also made clear that serious personal misconduct (where it is substantiated) will be disclosable in regulatory references, in the same way as financial misconduct. This is intended to prevent individuals from avoiding accountability for misconduct by moving between firms unnoticed.