The FCA’s new rules on non-financial misconduct: dealing with issues which arise in an employee’s private life

This is our second article in our series on the FCA’s new rules on non-financial misconduct, which come into force on 1 September 2026. Our series focuses on key issues for HR professionals and other individuals with responsibility for people issues in regulated financial services firms.  The series will culminate in our lunchtime Webinar on 14 July which you can register for here: The FCA’s new rules on non-financial misconduct: what HR professionals need to know.

In this second article in our series, we look at when behaviour in an employee’s private life might become a regulatory issue.

For an overview on the key changes, our first article can be found here: The FCA’s new rules on non-financial misconduct: key issues for HR professionals in regulated firms - Burges Salmon

The FCA’s new rules on non‑financial misconduct come into force on 1 September 2026.  The new rules and guidance give rise to some difficult issues for HR professionals in assessing when misconduct in an employee’s private life behaviour becomes a regulatory issue. 

Why does the FCA consider that an individual’s private life might be relevant to its regulatory function?

The FCA has faced some challenges in establishing why an individual’s conduct in their private life might impact their ability to carry out a regulated role and how that, in turn, could tarnish the integrity and reputation of the industry as a whole. 

In 2021, FCA sought to prohibit John Frensham from the industry following his conviction for a grooming offence.  When Mr Frensham contested that decision before the Upper Tribunal, it accepted that the criminal conduct was very serious, but it found that the FCA had failed to establish that such criminal conduct was relevant to Mr Frensham’s ability to carry out his regulated role and to the FCA’s statutory objectives.  “Public outcry” was not enough.  The introduction of this new guidance by the FCA can, in part, be seen as a response to that issue.

Are the Conduct Rules relevant to conduct in an employee’s private life?

The FCA has not extended the Conduct Rules (COCON) to employees’ private lives. The new rule, COCON 1.1.7FR, applies only to misconduct which occurs in the performance of an individual’s role for a regulated firm.  That could extend to conduct outside the workplace - the new guidance includes a non‑exhaustive list of criteria and scenarios to help firms determine whether serious misconduct falls within scope of COCON and which emphasise the FCA’s broader message that firms should act proportionately and avoid unnecessary intrusion in employees’ personal matters.

The guidance highlights that misconduct by an employee in relation to a colleague at a social event organised by the firm will generally be within the scope of COCON; whereas misconduct at a social event organised privately by an employee will be out of scope of COCON (even if colleagues attend).   HR professionals will be familiar with that concept as it reflects established principles under employment law about when misconduct outside the physical workplace might be a disciplinary matter for the purposes of the firm’s internal disciplinary processes.

In certain circumstances private or non-work events could be brought within COCON. The FCA’s guidance explains that if an event is organised by a manager and there is pressure to attend, if it’s a continuation of a work event, or if the non-financial misconduct started at the work event and then continued at a subsequent event, COCON could apply.  That seems to require a need to dissect the anatomy of a night out in order to assess whether conduct later in the evening would be within scope.

When might fitness and propriety issues in an employee’s private life be relevant to an employer?

Under the FCA’s fit and proper guidance (FIT), a key threshold introduced in the guidance is whether private conduct creates a “material risk” that the individual may fail to meet regulatory standards. In practice, this is likely to capture situations where:

• the behaviour raises concerns about honesty, integrity or reputation;
• the conduct would breach COCON if repeated in the workplace; and/or
• there is a meaningful risk that similar behaviour could occur in a professional context.

The FCA goes further and says that misconduct in a person’s private life may be relevant to their fitness and propriety even where there is no risk of being repeated in work for the firm.  Key indicators  include, for example, evidence of an individual’s willingness to disregard ethical or legal obligations, to abuse a position of trust and/or exploit the vulnerabilities of others.  The FCA has confirmed that a person can be deemed not fit and proper even if it cannot be shown that the misconduct will by itself cause direct and discernible damage to public confidence in the industry or to a particular firm.  That stretches the regulatory reach of the FCA into private life to its limit.

What are the key practical challenges for firms?

The FCA acknowledges that firms cannot monitor private lives and may have limited ability to investigate conduct which takes place outside work.  Nevertheless, firms will be expected to take reasonable steps to investigate where concerns arise.  Firms should give some consideration to which circumstances might trigger such an investigation and how it would be dealt with so that determinations can be made consistently.

There is clearly a major practical challenge for firms in carrying investigations into conduct outside the workplace, not least where there are parallel criminal or other judicial proceedings underway.  Furthermore, because non-financial misconduct may involve sensitive allegations, great care will need to be take in engaging with witnesses, securing evidence and preventing breach of confidentiality.

From a practical perspective, firms should be looking at internal training and policies on FIT assessments and reviewing speak up and contractual frameworks around disclosures of wrongdoings. 

We will cover key considerations around speak up channels along with other matters in our upcoming articles in the series.

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.