FCA's new rules on non-financial misconduct

Under new Code of Conduct rule ("COCON") 1.1.7FR, the scope of the conduct rules for non-banking firms will be extended to include serious NFM where it relates to an individual’s role.

The FCA has published guidance on NFM in financial services to help firms prepare for the upcoming changes. A copy of the guidance can be found here.

What is non-financial misconduct?

The FCA describes NFM as any misconduct that is not clearly of a financial nature.

Whether such misconduct constitutes serious NFM will depend on the specific circumstances of each case, but some examples include bullying, harassment, and acts of violence.

COCON 4.3 sets out the factors that the FCA will consider when determining whether NFM conduct is serious in the context of harassment. These factors include (non-exhaustive):

Whether the conduct is serious or part of a pattern
The duration of the conduct
The size of the impact on the subject of the conduct
The seniority of the person whose conduct is in question, as well as the difference in seniority between the person whose conduct is in question and the subject of the conduct
Whether the person whose conduct is in question has been warned previously
Whether the conduct is criminal or would justify dismissal.

There may well however be other fact-specific considerations that influence whether misconduct is deemed serious.

The FCA expects firms to exercise reasonable judgment in their assessment and application of the seriousness threshold.

Who does the new rule apply to?

The changes will apply to all non-banks subject to the Senior Managers and Certification Regime ("SM&CR"). NFM that only relates to a part of a non bank’s business that does not involve SM&CR financial activities will however fall outside of the scope of the new rule.

Fit and Proper test

In addition to the introduction of COCON 1.1.7FR, the FCA's guidance explains how NFM forms part of the existing SM&CR requirement for firms to assess the fitness and proprietary of individuals in certain roles. This assessment is conducted under the Fit and Proper test for Employees and Senior Personnel (FIT) sourcebook.

In particular, the FCA has added guidance to help firms assess whether they need to take steps to investigate allegations about an individual's private life. For example, the FCA clarifies that firms are not expected to investigate:

Trivial or implausible allegations or those it would be more appropriate for law enforcement or other authorities to investigate; or
Allegations that even if true, would not be relevant to fitness and proprietary (i.e. there is no material risk that the individual will breach regulatory standards and requirements).

The FCA also clarifies that:

Conduct in private life that would breach regulatory standards if it were repeated at work, for example, violence or sexual misconduct, will be relevant if there is a material risk of such repetition;
Conduct in private life may be relevant, even if it is unlikely to be repeated at work, if it is so serious there is a material risk of damaging public confidence in the UKs financial system and financial services industry; and
Conduct that attracts a criminal conviction may be especially relevant.

Key differences

While COCON 1.1.7FR and FIT are interrelated in their objective of promoting high standards of conduct and integrity within the financial services sector, they continue to operate separately and there are key distinctions which firms need to understand in order to implement the rules effectively. For example:

COCON 1.1.7FR applies to all employees within a firm who are subject to the conduct rules, whereas FIT applies to individuals in senior management and certification roles.
Conduct in private life may be relevant to FIT, whereas the scope of COCON 1.1.7FR is limited to work-related misconduct (this may however extend to conduct outside of work where it is closely enough connected to work, for example misconduct at a training event or workshop organised by a client).
COCON 1.1.7FR is concerned with ongoing compliance and monitoring of serious NFM which takes place from 1 September 2026 onwards. FIT, on the other hand, involves a broader assessment of an individual’s character, competence, and financial soundness, which may include a consideration of their past conduct.

Conclusion

The FCA’s new rules on NFM mark an important step in aligning and strengthening conduct standards across the financial services sector.

Ensuring compliance with the new rules does however introduce a new challenge for firms, particularly regarding the application of the seriousness threshold under COCON 1.1.7FR, which has the ability to give rise to inconsistent approaches across the sector, and in relation to assessing whether conduct in an individual's private life (or conduct outside of work, where that conduct is closely connected to work) is relevant to COCON 1.1.7FR and / or FIT.

To ensure compliance with their regulatory obligations, firms should now be taking steps to familiarise themselves with the FCA's guidance and review approaches to staff policies, conduct breach reporting, FIT assessments and regulatory references ahead of 1 September 2026.

The FCA also expects firms to ensure staff and managers understand how the changes apply to them, so firms should have appropriate training in place.