The long-awaited FCA paper on non-financial misconduct – was it worth the wait?

Policy Statement – swapping one mismatch for another?

The FCA’s press release states that the purpose of the changes in the Policy Statement is to “align the conduct rules in banks and non-banks for cases of serious NFM”.

There has historically been a mismatch between the scope of COCON for non-SMF individuals working in banks, and individuals working for other authorised firms, the justification for which was unclear.  For non-SMFs in firms that are not banks, the application of COCON is more limited, meaning that potentially the same conduct by the same individual might currently fall either within or outside the scope of the Conduct Rules, depending upon whether their employer was a bank or a different type of authorised firm. The rule changes in the Policy Statement are primarily aimed at reducing this mismatch.

However, it is worth noting that the Policy Statement actually introduces a new mismatch into the rules applicable to banks and to non-banks. The Policy Statement includes, for non-banks only, a definition of the types of non-financial misconduct that is capable of constituting a breach of the Conduct Rules, as follows:

“The kind of conduct to which this rule applies… is unwanted conduct of the following kinds in relation to an individual referred to in (3) (‘B’):

(a) conduct that has the purpose or effect of:

(i) violating B’s dignity; or

(ii) creating an intimidating, hostile, degrading, humiliating or offensive environment for B; or

(b) conduct that is violent to B.”

This definition is important for the purpose of legal certainty and so ought properly to be included in the rules for banking firms also, if the rules across the sectors are to be properly “aligned”. We hope that the FCA will decide to consult upon introducing an equivalent definitional rule for banking sector firms, or at least replicate this text in guidance applicable to banking sector firms, when it publishes its final policy statement later this year.

Consultation Paper – improvement on the previous guidance, but needs honing further

It is clear that the FCA has listened carefully to the substantial feedback it received on its September 2023 consultation. It has made various helpful changes to make less subjective the guidance on when conduct in an individual’s private life will be relevant to a fitness and propriety assessment (for example, removing terms such as “disgraceful or morally reprehensible”) and has introduced specific guidance on how an individual’s activity on social media will and will not be relevant to that assessment.

Similarly, some of the most subjective aspects of the previous draft guidance on how to assess when a Conduct Rule breach has occurred have been removed (for example, it has removed from the guidance on compliance with Individual Conduct Rule 1 the concept of “conduct inconsistent with a good working environment” in which people “feel respected” by their colleagues).

A new and improved list of factors by which to assess the seriousness of an incident for the purposes of diagnosing a conduct rule breach is also proposed, which will be helpful to firms.

There is also helpful and reassuring draft guidance for individuals who manage others in the context of complying with Individual Conduct Rule 2 (you must act with due skill, care and diligence), including that “a manager will not be in breach of ICR2 if they have acted reasonably. There will often be a number of different reasonable courses of action that can be taken in a particular case.” This must be balanced, however, against a more onerous proposal that “failing to take reasonable steps to provide a safe environment for people to raise concerns” could constitute a breach of Individual Conduct Rule 2 by a manager. This potentially introduces a very unattractive level of personal exposure for those managing others which, in our view, could be counter-productive.

Another helpful change from the previous draft guidance is that the FCA now proposes to concede that, when a firm is assessing whether there has been misconduct in an individual’s personal life that may be relevant to an assessment of their fitness and propriety, it may normally rely upon formal findings only.  Less helpfully, however, the draft guidance suggests that where an allegation comes to a firm’s attention concerning the private life of an individual to whom the fitness and propriety test applies, then even where a firm has not been able to establish the truth of the allegation, they should report it to the FCA anyway – this would surely not be appropriate where an allegation is entirely unsubstantiated.

Next steps

The FCA’s non-financial misconduct guidance remains in draft and firms now have until 10 September 2026 to send feedback on the updated draft guidance.

The FCA plans to publish its final guidance (unless it receives feedback that such guidance would be unhelpful – which seems highly unlikely) before the end of this year, with the new rules and guidance to take effect from September 2026. Firms will need to ensure that they consider their statutory obligation to provide appropriate training to all staff who are subject to the Conduct Rules, to ensure that they understand what the (revised) Conduct Rules require before September 2026.

We will be running a breakfast workshop at BCLP’s London office on the morning of Thursday, 10 July, to study the new draft guidance in detail – please contact Polly James or Mariam Fazel if you would like to attend.