UK FCA aligns conduct rules in banks and non-banks for serious non-financial misconduct

Although the scope of the Financial Conduct Authority's (FCA) Code of Conduct for Staff sourcebook (COCON) is already relatively wide in relation to banks, it currently applies to non-banks primarily to conduct around senior managers and certification regime financial activities. Although NFM can amount to a breach of rules in any firm, under the current rules, a breach of COCON is more likely in a bank than a non-bank.

As such, it has historically been unclear when non-financial misconduct (NFM) would constitute a breach of COCON for non-banks. New rules announced by the FCA policy statement mean that conduct rules will now more closely align between banks and non-banks, bringing more behaviour within the scope of COCON.

Set to come into effect on 1 September 2026, approximately 37,000 regulated firms are likely to be affected. The FCA hopes that increased certainty will lead to consistent handling of NFM, and promote trust and integrity within the financial services industry.

As well as the proposal to amend the rules on NFM in COCON, 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.

Policy statement

NFM definition clarification. NFM refers to the types of serious misconduct described in the new rule at COCON 1.1.7FR –  bullying, harassment and violence, unless otherwise stated.

Widened scope of conduct rules. The application provisions of COCON will be amended so that conduct rules align and apply equally to banks and non-banks.

The FCA expects benefits to include strengthening individual accountability and deterring instances of NFM, promoting consistent treatment of perpetrators, and increasing high professional standards via the regulatory reference requirements.

The new COCON rules will not apply retrospectively.

Proposals not taken forward. 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 COND and reminding firms of the need to disclose NFM in response to question G in a regulatory reference.

Consultation on further guidance:

The draft Handbook guidance includes:

• Examples of scenarios illustrating the boundary between work and private or personal life.
• Clarity and greater alignment with employment law, including considering subjective and objective factors in cases of NFM, based on section 26(4) of the Equality Act.
• Repositioning and removing elements of previous guidance on highly subjective language such as a "good working environment", "moral soundness" and "disgraceful or morally reprehensible" behaviour, with more language tying certain conduct to the FCA's statutory objectives.
• Confirmation that individuals can express potentially controversial or offensive views in their personal life on social media, without automatically calling into question their fitness under FIT.

If, after consultation, the FCA publishes proposed guidance, it plans to clarify that a firm 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. It will also clarify that it does not expect firms to monitor employees’ private lives to identify anything that is relevant to fitness.

If adopted, the FCA's guidance would also assist firms in understanding when an individual's conduct outside of the workplace, which they might otherwise think is not relevant to an individual's professional role as the Upper Tribunal had determined was necessary in the Frensham decision, is nonetheless considered a regulatory issue.

The FCA has made it clear that the proposed guidance will not duplicate existing legal obligations under the Equality Act and the recent preventative duty to protect workers from sexual harassment. The aim is to provide clarity and support for firms without imposing unnecessary additional burdens.

What should firms do now?

In light of this new guidance, firms will need to review the new rules thoroughly. Practically, firms will need to update their internal policies and procedures to align with the new rules. This includes revising conduct policies to explicitly address bullying, harassment, and violence, and ensuring that regulatory references accurately reflect any substantiated cases of misconduct.

Firms will need to educate their staff on the importance of these changes and how they impact their roles and responsibilities. Managers, in particular, should be trained on how to handle complaints and prevent misconduct within their teams.

Firms should also consider whether to respond to the consultation on draft guidance.

What happens next?

The consultation on the draft guidance is open until 10 September 2025, after which the FCA will proceed with publication of the guidance only if there is clear support to do so.

Firms have until 31 August 2026 to amend existing policies and procedures to reflect the change under the wider COCON rule.

On 1 September 2026, the wider COCON rule (deliberately aligned with the existing conduct rule breach reporting period to make implementation simpler) will come into effect.

Osborne Clarke comment

Against a backdrop of a clear growth and simplification directive from the government, it would have been a brave regulator to have published the full body of NFM rules as initially consulted.

CP25/18 is a considered document that proposes helpful guidance on assessing and making determinations on NFM incidents in the future. Should the FCA publish the guidance as currently drafted, compliance and HR are in a better position to implement effective policies and procedures that will provide greater certainty and consistency to the industry. However, care will need to be taken with potential retrospectivity in relation to previous COCON breach notifications made in the past.

While the objectives of employment law and conduct regulation do not always neatly converge, the proposed Handbook guidance attempts to reduce unfair outcomes by more clearly aligning conduct requirements with elements of equality and employment legislation. Whether this will be sufficient is likely to be tested in an employment tribunal in the future.