The FCA’s new rules on non-financial misconduct: key issues for HR professionals in regulated firms

Over the coming weeks, the Burges Salmon employment team will be publishing a series of articles on the FCA’s new rules on non-financial misconduct, which come into force on 1 September 2026.  Our series will focus on key issues for HR professionals and other individuals with responsibility for people issues in regulated financial services firms.  The series will culminate in a lunchtime webinar: The FCA’s new rules on non-financial misconduct: key issues for HR professionals on 14 July 2026, which you can register for here. 

In this first article in our series, we identify the key changes the FCA is making and we identify some key areas for HR practitioners in regulated firms.   These will be explored in more detail in future posts.

What’s changing? 

The Financial Conduct Authority (“FCA”) has for several years emphasised the importance of culture, governance and individual accountability for good regulatory outcomes. However, there has been some uncertainty about the extent to firms could (or should) act when addressing non-financial misconduct, where there was no direct link between that misconduct and the performance of a firm’s regulatory activities. That lack of clarity has now been addressed through new rules and guidance, informed by extensive engagement with firms across the sector.

The FCA’s new guidance will drive a change in approach for firms dealing with non-financial misconduct, as instances of harassment (including sexual harassment), bullying or violence are now very clearly a core regulatory concern.  For many firms instances of serious non-financial misconduct may still be infrequent, but where they arise it is now essential that firms understand how to deal with them in a way that is compliant with their own internal policies, employment law and regulatory expectations.

What are the new rules and guidance?

The changes, finalised in PS25/23: Tackling non-financial misconduct in financial services, will come into force on 1 September 2026.

At the centre of the reforms is a new rule, COCON 1.1.7F R.  From 1 September 2026, serious misconduct towards colleagues may constitute a regulatory breach where it relates to the performance of an individual’s role and there is a sufficient nexus to the individual’s work.   There is no longer any need for the misconduct to take place in the course of carrying out financial services activities.  This aligns non‑banks more closely with the position already applicable to banks.  

There are also extensive changes to guidance in COCON and FIT which accompany that rule change. 

What are the key issues HR professionals are likely to face when dealing with issues of non-financial misconduct?

Dealing with issues which arise in an employee’s private life

Some difficult issues will arise in assessing the impact of non-financial misconduct in an individual’s private life.  Firms will need to grapple with where to draw the boundary between what is bad behaviour that is personal and private, and what is potentially relevant to the regulatory position.  The FCA states that where that conduct demonstrates a willingness to disregard “legal or ethical obligations” then it is potentially relevant to the issue of whether an individual is fit and proper – but that immediately raises some difficult questions as to what conduct would fall within that bracket.

There is also the practical challenge of how to investigate. The FCA accepts that a firm cannot monitor private life and may have a limited ability to investigate conduct outside work, but that does not mean firms can turn a blind eye to evidence of poor conduct.

Social media

The FCA has made clear that non-financial misconduct is relevant where it reveals something about a person’s integrity, honesty, or reliability. Social media activity can fall within that scope and is assessed in the same way as other forms of conduct in private life.

There is, however, a balance to be struck - employees remain entitled to lawfully express their views on social media, and online activity will only become relevant where it indicates a material risk of a breach of regulatory standards. The FCA guidance gives examples such as threats of violence, clear involvement in criminal activity, or conduct suggesting a risk of workplace bullying or harassment.

In a world where social media discourse is increasingly polarised, partisan and (occasionally) toxic, it seems highly likely that complaints of online harassment or bullying will arise.  Those will then have to be considered through a regulatory lens. 

Increased managerial accountability

A further important feature of the regime is the focus on managerial accountability. Managers may breach COCON if they fail to take reasonable steps to prevent or address misconduct, or allow a culture in which inappropriate behaviour goes unchecked.  This includes where a manager was unaware that misconduct was taking place, but should reasonably have known about it.  We think this places a greater burden on managers than has previously been the case. 

Managing investigations

In a world where a non-financial misconduct finding against an individual can have career-defining, even career-ending, consequences, the pressure on HR professionals in managing overlapping disciplinary and regulatory investigations will be high.  That pressure is increased with the prospective removal of cap on compensation for unfair dismissal from 1 January 2027.

These are just some of the difficult issues which might arise when issues of non-financial misconduct arise. We will explore these points – and more – in our upcoming posts. 

If you have any questions about the impact of non-financial misconduct reform on your firm, then please do not hesitate to get in touch with James Green, Carlene Nicol or your usual Burges Salmon contact.