Regulatory Alignment: Conduct Standards Unified for Financial Institutions in the UK in Cases of Grave Non-Financial Wrongdoing
The Financial Conduct Authority (FCA) has recently announced updates to its rules regarding non-financial misconduct (NFM) in the financial services sector. The key developments aim to bring more behaviour within the scope of the Code of Conduct sourcebook (COCON), aligning conduct rules between banks and non-banks.
## Alignment of Conduct Rules Between Banks and Non-Banks
The FCA has extended the scope of COCON to non-banking firms, making it clear that serious non-financial misconduct, such as bullying, harassment, and violence, is a matter of regulatory concern. These rules will align with those currently in place for banks, coming into effect on 1 September 2026, affecting approximately 37,000 regulated firms.
## Clarification and Guidance
To help firms interpret and apply the conduct rules consistently, the FCA is proposing additional guidance in COCON and the Fit and Proper Test (FIT) sourcebooks. Feedback on the draft guidance is welcomed until 10 September 2025, with the FCA planning to finalize its regulatory approach by the end of 2025.
## Scope of NFM
The FCA's expansion of COCON aims to address inconsistencies in how firms handle cases where behaviour in an individual's private life is considered under NFM. The proposed guidance does not duplicate existing legal obligations under the Equality Act and the preventative duty to protect workers from sexual harassment.
Firms have until 31 August 2026 to amend existing policies and procedures to reflect the change under the wider COCON rule. The FCA does not expect firms to monitor employees' private lives to identify anything that is relevant to fitness.
## Consultation and Future Considerations
The FCA is consulting on adding new Handbook guidance in COCON and its "fit and proper" test for employees and senior personnel (FIT) to further assist firms in interpreting and applying rules. The objectives of employment law and conduct regulation may not always neatly converge, and the proposed guidance's effectiveness may be tested in an employment tribunal in the future.
The FCA will not proceed with guidance on the relevance of NFM in its assessment of a firm's suitability to undertake regulated activities under the Threshold Conditions (COND). The potential for retrospectivity in relation to previous COCON breach notifications made in the past will need careful consideration.
Firms will need to review the new rules, update their internal policies, and educate staff on the changes to ensure compliance with the updated regulations. The FCA encourages firms to respond to the consultation on the draft guidance, which is open until 10 September 2025.
- The Financial Conduct Authority (FCA) encourages firms to respond to the consultation on the draft guidance, which aims to help firms interpret and apply conduct rules consistently and aligns them between banks and non-banks, including in matters concerning employment law.
- In line with the FCA's announcement, firms have until 31 August 2026 to amend existing policies and procedures to reflect the change under the wider Code of Conduct sourcebook (COCON) rule, in light of the proposed updates to employment law and policy-and-legislation.
- As part of the FCA's clarification and guidance, it plans to finalize its regulatory approach by the end of 2025, addressing the challenges and complexities related to finance, business, general-news, and politics, as well as potential conflicts with existing legal obligations like the Equality Act and the preventative duty to protect workers from sexual harassment.
