The FCA’s new rules on non-financial misconduct: getting investigations right

This is our final 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.

In this final article, we consider some of the practical challenges firms may face when investigating allegations of non-financial misconduct.

Do the new rules and guidance change how regulated firms should investigate allegations of misconduct? 

Allegations of bullying, harassment or other misconduct by employees that may amount to non-financial misconduct will typically begin with a fact-finding investigation for HR purposes. The FCA’s reforms do not fundamentally change the employment law principles that underpin a fair workplace investigation. Firms should continue to follow their internal procedures and apply the principles set out in the ACAS Code when investigating allegations and reaching disciplinary decisions.

However, while the employment law framework remains familiar, the wider regulatory implications of serious non-financial misconduct findings may mean that firms give increased attention to how investigations are conducted and documented.   

Why might investigations attract greater scrutiny?

One of the most significant consequences of the FCA’s reforms is that findings relating to serious bullying or harassment may extend beyond the immediate employment relationship. Depending on the circumstances, such findings could have implications for an individual’s fitness and propriety assessment, future regulatory references and their ability to perform certain regulated roles. Firms should therefore expect investigations into non-financial misconduct to attract a higher degree of scrutiny from those involved.

Individuals who are the subject of allegations will undoubtedly challenge findings and seek to test the robustness of the investigative process.   Procedural failures - particularly when dealing highly-remunerated senior executives - will become much more expensive in the context of the reforms ushered in by the Employment Rights Act 2025.

Equally, complainants and whistleblowers may question decisions not to uphold concerns and/or may pursue employment disputes in response to a firm's failure to deal appropriately with their allegations.  That is particularly the case in the context of the next phase of anti-harassment reforms and the incoming duty to take “all reasonable steps” to prevent sexual harassment.

In some circumstances, regulators may also take an interest in how particularly sensitive allegations have been handled.

Against that backdrop, firms are likely to place greater emphasis on ensuring that investigations are thorough, balanced and well documented.

Is there a right to legal representation at disciplinary hearings for non-financial misconduct?

The potentially serious consequences of non-financial misconduct findings will also have a material impact on how senior employees respond to becoming the target of an internal investigation. 

Firms may see an increase in requests for legal representation at disciplinary hearings, particularly where allegations have the potential to affect an individual’s future career in regulated financial services.  While there remains no general right to legal representation in workplace disciplinary proceedings, firms should nevertheless consider carefully how requests of this nature are handled, particularly where significant regulatory consequences may arise.  Firms should expect investigations into non-financial misconduct to get more formal, more quickly. 

Will firms make greater use of external investigators?

The FCA’s reforms may also reinforce the existing trend towards the use of independent, external investigators in sensitive workplace matters. The FCA expectation is that investigations will be conducted objectively and independently by an appropriately qualified individual. This does not mean that firms will need to appoint an external investigator. However, the increased jeopardy when dealing with a serious allegation of non-financial misconduct may lead firms to consider more carefully whether external support is appropriate in particular circumstances.

External investigators may be particularly helpful where allegations involve senior individuals, raise complex issues, or create concerns about actual or perceived independence.

As firms continue to adapt to the FCA’s new approach to non-financial misconduct, HR, legal and compliance teams will need to navigate the interaction between employment law obligations and regulatory expectations. Ensuring that investigations are fair, robust and proportionate will remain key.

You can catch up on our earlier articles here: 

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

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

The FCA’s new rules on non-financial misconduct: social media and the right to offend

The FCA’s new rules on non-financial misconduct: whistleblowing and the rising burden on managers

If you would like advice on investigating allegations of non-financial misconduct, or 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.