The UK’s main financial services regulator, the FCA (Financial Conduct Authority), is currently consulting on updating its handbook to help better address non-financial misconduct (NFM).
Background
The FCA’s consultation follows increasing public and political concern about how allegations of inappropriate conduct in the financial services industry have historically been dealt with.
The consultation is an evolution of an earlier and broader consultation back in September 2023, which included proposals regarding NFM and also looked at improving diversity and inclusion in the sector. The FCA decided to drop the diversity and inclusion proposals back in March this year (see our article here) but confirmed it would continue to prioritise its work to tackle NFM in firms.
It also follows the publication of a recent FCA survey, which indicated that reported incidents of NFM have significantly increased.
What is being proposed?
The proposed updates to the FCA Handbook will introduce a new ‘anti-harassment’ rule in COCON (the Code of Conduct), as well as sweeping and detailed guidance on how the regulator expects allegations of NFM to be handled and responded to.
The FCA’s goal is to align the scope of COCON for FCA-regulated (non-bank) firms with the corresponding conduct rules of the PRA (Prudential Regulation Authority) that apply to banks, to create a level playing field.
For HR professionals grappling with the extensive consultation, there are some key points worth noting:
- The definition of harassment is very wide and does not need to relate to a particular protected characteristic (such as sex, race, etc) unlike the existing regime in discrimination law. It will potentially cover general ‘bullying’ (which currently has no fixed UK legal definition).
- The expansion from the current employment law/discrimination definition of harassment means HR professionals will need to come to grips with different legislative and regulatory regimes overlapping but not covering the same identical ground.
- NFM may constitute a breach of COCON (the Code of Conduct, which relates to work) and also FIT (the Fit and Proper test, which relates to an individual’s general character and integrity).
- The FCA’s general approach is to say that all the facts of a particular scenario must be considered when looking at NFM, including various non-exhaustive considerations it will set out in the updated guidance. In other words, it is a ‘shopping list’ approach, where a FCA-regulated employer will need to weigh up various factors that the FCA sets out, as well as anything else that is reasonably relevant.
- There is a renewed focus on managers being personally responsible for making sure NFM is dealt with appropriately, irrespective of whether a complaint has been made or not. It will be much harder to turn a blind eye to any concerns and hope they go away, or to just encourage an individual to leave quietly.
- Beyond this, rather than simply reacting to incidents, managers will be expected to take proactive steps to prevent harassment and take responsibility to embed a healthy culture. This is aligned with the new duty to take reasonable steps to prevent sexual harassment, effective from October last year.
- A finding of harassment (including bullying) will likely also impact an individual’s regulatory reference and industry track record, with potentially serious consequences.
Next steps and impacts
The short consultation period closes on 10 September 2025, with final updates to be published later this year and likely commencement in September 2026. It is anticipated that changes will be implemented broadly as proposed, but employers should watch for developments and may want to contribute their views on the proposed changes (see CP25/18 Feedback Form).
For HR professionals, if the changes are implemented as proposed there will be immediate tasks:
- Reviewing and potentially updating template contract documents, as well as handbooks/policies (to make sure they fit with the new Handbook provisions).
- Training employees, managers and HR staff in the new expectations of the regulator and how to proactively reduce the risk of incidents arising. The days are now long gone when this was a nice-to-have; it should now be seen as very much a compulsory part of the modern workplace.
- Making sure they understand how to undertake investigations and make COCON/FIT decisions within a framework that will satisfy both employment/discrimination legal requirements, as well as those of the regulator.
