On Wednesday 2 July, the FCA published a policy statement and consultation paper on tacking non-financial misconduct (NFM) in financial services.

Policy Statement

• Widens the scope of the Code of Conduct (COCON) in non-banks for NFM against colleagues to align the rules across all SM&CR firms and bring more instances of NFM into the FCA’s regulatory remit.
• Covers a broader range of workplace misconduct that is relevant to the FCA’s statutory objectives. The rule is not limited to conduct linked to a ‘relevant protected characteristic’.
• Employers may, in some circumstances, be able to take disciplinary action for misconduct in a non-work setting even if it does not amount to a breach of COCON.
• Other types of work-related misconduct, such as towards clients of business contacts, may breach COCON.
• Identifying factors for assessing whether work-related NFM falls within the new rule include whether the conduct (bullying, harassment or violence) was unwanted against a colleague or, for example, violent.
• Where a firm identifies an error in its previous conduct rule breach determination, it should rectify the past notification in line with FCA rules. However, firms are not expected to conduct retrospective analysis of past decisions.
• No changes to Question G on the regulatory reference template (‘Are we aware of any other information that we reasonably consider to be relevant to your assessment of whether the individual is fit and proper?’). Firms must ‘have regard’ to certain matters when answering Question G but are not required to provide information they reasonably believe to be irrelevant to an assessment - even if that information would need to be disclosed in an SMF application or, if they were an approved person, under SUP 10C.14. For example, allegations of NFM where the investigation finds conclusive evidence that the misconduct did not occur.
• Clarifies that SYSC 22.2.2R(3)(c), which lifts the 6-year time limit for providing information if it relates to ‘serious’ misconduct, does not mean that certain information must automatically be disclosed in perpetuity. The seriousness of misconduct depends on context, per SYSC 22.5.10G–22.5.11G.
• Clarifies that the obligation to disclose a conduct rule breach in response to Question F on the template occurs only if disciplinary action had been taken. This obligation does not apply if the breach took place more than 6 years earlier and was not ‘serious’ for the purposes of the existing guidance.

Consultation

The FCA is consulting on new Handbook guidance in COCON and FIT to help SM&CR firms interpret and consistently apply the conduct rules and to clarify statutory and regulatory expectations around fitness and propriety. The FCA will only proceed if there is “clear support” for doing so.

Summary of proposals:

• Firms must always take into account all the circumstances of a case.
• Firms must consider both subjective and objective factors in cases of NFM, based on section 26(4) Equality Act.

1. Two factors are always relevant: the perception of the subject and the reasonableness of that perception.
2. There is no rule breach if the subject did not feel their dignity was violated (for example), or if it was unreasonable to consider the conduct had that effect.

• New guidance and examples on:

1. The scope of COCON, including the boundary between work and private/ personal life, where misconduct is outside a firm’s SM&CR financial activities and where NFM only relates to a non-financial services business of a firm.
2. The distinction between breaches of Individual Conduct Rules 1 (integrity) and 2 (due skill, care and diligence).
3. Factors for determining whether NFM is serious enough to amount to a breach.
4. Reasonable steps for managers.

• Revised or removed guidance, including:

1. The description of a ‘good working environment’.
2. Non-exhaustive examples of serious misconduct.
3. Certain factors for determining whether NFM is serious.

• Clarification that seriousness is not the deciding or distinguishing factor in determining whether NFM is a breach of Rule 1 or Rule 2.

1. Only deliberate or reckless misconduct is considered a breach of Rule 1 (integrity). Absent those factors, NFM is likely to be a breach of Rule 2.
2. Not all misconduct for which a firm might reasonably take disciplinary action under its own policy will also breach COCON. For example, some misconduct may fall outside FCA rules or may not be serious enough to meet the FCA’s regulatory threshold.

• The FCA will not issue guidance on firms’ disciplinary policies and sanctions for breaches.
• Clarifications on the use of the term ‘serious’ in COCON:

1. A seriously negative effect sufficient for a potential rule breach.
2. In SYSC 22, it determines if past conduct is sufficiently serious not to be subject to the 6-year time limit for disclosure in regulatory references.
3. Whether a breach is ‘significant’ under SUP 15.3 has no bearing on whether separate notification is required under SUP 15.11. A breach where certain disciplinary action was taken is reportable even if it was not ‘significant’.
4. References to “particularly serious” NFM relate to the FCA’s threshold for enforcement action - a separate consideration to determining a COCON breach in the first place.

• Guidance on private life conduct:

1. Firms will normally rely on formal findings, such as criminal convictions or the findings of a court, tribunal, regulator, arbitrator, public enquiry or other body, when assessing whether wrongdoing in private life has taken place.
2. The FCA does not expect firms to monitor their employees’ private lives but if a firm becomes aware of information that would – if substantiated – call into question their fitness and propriety under FIT, the firm should consider what steps it can reasonably take to assess this possible impact, such as seeking an explanation from the individual.
3. The inability to establish the truth of an allegation does not mean it should not be reported to the FCA if, were it established to be true, it would reasonably be material to an assessment of fitness and propriety. This does not require firms to assume or assess an individual’s guilt.

• The FCA will adopt neutral language in guidance – avoiding terms like ‘moral soundness’ and ‘disgraceful or morally reprehensible’.
• Examples of conduct inside and outside work or a regulated role that may affect fitness and propriety:

1. Conduct that is dishonest or shows a lack of integrity.
2. Repeated minor breaches of law or of other standards and requirements. Misconduct where there is little or no risk of it being repeated at work may be relevant if it shows a willingness to disregard ethical or legal obligations, abuse a position of trust or exploit others’ vulnerabilities.
3. Custodial sentences (even suspended) are likely to be relevant to fitness and propriety though each case turns on its facts. Indicators of seriousness should be weighed against other relevant matters.
4. The FCA’s statutory objectives are a key consideration when assessing fitness and propriety.

• Guidance to help firms assess the relevance of past conduct rule breaches to fitness and propriety. A conduct rule breach does not automatically indicate that an individual is unfit.
• Clarification that, in principle, a person may lawfully express their views on social media in their private/ personal life, even if those views are controversial or offensive and even if work colleagues are upset by those views, without this calling into question their fitness and propriety – unless such activity indicates a real risk of regulatory rule/ standards breaches (such as threats of violence or clear involvement in criminal activities).
• The FCA will not amend the Threshold Conditions (COND) and Senior Management Arrangements, Systems and Controls (SYSC) sourcebooks.
• The FCA will not amend rules and guidance on regulatory references in SYSC 22.

1. Firms must disclose all conduct rule breaches where disciplinary action was taken (subject to time limits).
2. Firms must disclose any other information reasonably believed to be relevant to the fit and proper assessment – this includes matters beyond dealings with customers, counterparties, their assets or markets.

The consultation closes on 10 September 2025 and the FCA aims to set out its final approach by the end of the year. The Policy Statement (and any guidance) will apply from 1 September 2026.

If you have any questions, please contact Aniqah Rao.