FCA Introduces a New Non-Financial Misconduct Rule

On 2 July 2025, the FCA published a further consultation paper (“CP25/18”) on tackling non-financial misconduct (“NFM”) in financial services, containing a Policy Statement with finalised rules on NFM to come into force and proposals for new Handbook guidance on the application of the new rule.

The FCA initially consulted on its NFM-related proposals in a wider consultation paper on improving diversity and inclusion (“CP23/20”), which was published in September 2023. In March 2025, the FCA announced that it would not be taking its diversity and inclusion proposals any further. Nevertheless, the FCA confirmed that it would continue its work to tackle NFM in firms.

What is Changing and Why?

The Policy Statement contained in CP25/18 pertains to NFM aspects of CP23/20. It introduces a new rule, COCON 1.1.7FR (the “New Rule”), which is intended to expand the scope of COCON for non-banks to match that for banks in the context of NFM (such as bullying, harassment and other forms of inappropriate personal conduct) perpetrated against colleagues in a work-associated environment. The New Rule, set out in full in the Annex, comes into force on 1 September 2026.

Prior to the commencement of the New Rule, to bring a COCON-based enforcement action for NFM against individuals at non-banks, the FCA currently must show that the conduct in question relates to the firm’s “SMCR financial activities” i.e., regulated activities or an activity carried out in connection with a regulated activity – in order for it to fall within the (relatively narrow) scope of COCON. Under the New Rule, NFM will not necessarily have to relate to the firm’s regulated activities. Thus, by broadening the scope of COCON for non-banks in this context, the New Rule will, in effect, be more closely aligned to the rules which apply to banks.

Other Key Aspects of CP25/18

CP25/18 proposes relatively detailed guidance on the scope and interpretation of the New Rule. This includes, but is not limited to, the circumstances in which the New Rule applies, guidance on the meaning of “serious” (see further below), the distinction between breaches of Conduct Rule 1 (You must act with integrity) and Conduct Rule 2 (You must act with due skill, care and diligence), and the two factors to consider when deciding whether the conduct has “had the effect” of (i) violating a colleague’s dignity, or (ii) creating an intimidating, hostile, degrading, humiliating or offensive environment for a colleague.

The FIT-related proposals seek to explain how NFM (both in and outside the workplace) is potentially relevant to an individual’s fitness and propriety. For example, amongst other things, the FIT guidance outlines how serious behaviour in an individual’s personal or private life and the way that they present themselves on social media, could impact their FIT assessment, and in turn, damage public confidence in financial services and the UK’s financial system.

Key Observations

• NFM Must Be “Serious”. The draft guidance confirms that the New Rule only applies to “serious” misconduct. In response to feedback from CP23/20, about the subjectivity of the term, COCON 4.1.8EG sets out factors that the FCA will consider when deciding whether the misconduct is serious enough to amount to a COCON breach. For example, whether the conduct is repeated behaviour, the perpetrator’s seniority and the impact of the conduct. Thus, misconduct warranting internal disciplinary action will not necessarily constitute a COCON breach, and vice versa.
• NFM Outside the Workplace. In the draft guidance, the FCA confirms that COCON does not extend to an individual’s private or personal life. Nevertheless, senior conduct rule staff members are required to disclose information about their private or personal life if it is material to a FIT assessment (as conduct in one’s private life is potentially relevant from a FIT perspective). While firms are not expected to monitor the private lives of their employees, they should consider what reasonable steps they should take to investigate any concerns that they become aware of, and which call into question the individual’s fitness and propriety.
• Frensham Compatibility. In the seminal case on NFM, Frensham, the Upper Tribunal criticised the FCA for making “speculative and unconvincing” links between Mr Frensham’s personal and professional integrity. They also disapproved of the FCA’s attempt to equate general moral failings with regulatory unfitness without sufficient evidential nexus to Mr Frensham’s professional role or the statutory objective of maintaining public confidence. Interestingly, FIT 1.3.18G adopts a broader, preventative stance: misconduct of the type in FIT 1.3.17G may render a person unfit, even if it cannot be shown that it will, by itself, cause direct and discernible damage to public confidence in the financial system, services and/or the firm. While FIT 1.3.18G reflects the FCA’s intention to widen its assessment of personal integrity, firms should note that enforcement decisions remain subject to Tribunal oversight – which, in Frensham, imposed a higher evidential threshold. The FCA’s stance would appear to align with a post-Frensham (and un-appealed) NFM case,[1] in which the FCA appeared to ignore the Tribunal’s evidence-related findings in Frensham.
• Failure to Address NFM by Managers. Under the draft guidance, there is an express expectation on managers to take reasonable steps to protect employees from NFM. This includes, but is not limited to, creating a workplace where employees feel safe to speak up and implementing policies and controls that detect NFM. If a manager fails to take reasonable steps, they will risk breaching Conduct Rule 2. A manager may also breach Conduct Rule 1 if they retaliate or allow retaliation against an individual who has either (i) raised concerns through the firm’s internal whistleblowing channels, (ii) been involved in an NFM investigation, or (iii) reported misconduct to the regulator.
• ‘Back-Door’ Application of the New Rule to Banks. While the New Rule directly applies to an “SMCR firm other than an SMCR banking firm”, it is, in effect, indirectly extended to SMCR banking firms through certain provisions within COCON. The extension works as follows:

1. under COCON 4.1.1BG, the guidance set out in COCON 4.1.1CG to COCON 4.1.1EG (which expressly cross-references to the New Rule) applies to all firms, including SMCR banking firms, and addresses potential breaches of Conduct Rule 1; and
    
2. under COCON 4.1.8CG, the guidance set out in COCON 4.1.8DG to COCON 4.1.8KG (which expressly cross-references to the New Rule) applies to all firms, including SMCR banking firms, and addresses potential breaches of Conduct Rule 2.

The guidance is open for consultation until 10 September 2025.

NFM Resource Pack

To help firms navigate the new rules and guidance, from a practical and operational standpoint, we have created an NFM resource pack – in which we distil the New Rule and related draft guidance into a flowchart format, with an accompanying explanatory note and a brief “Failure to Address NFM Guide” for managers.

If you are interested in receiving the NFM resource pack, please contact a member of the team.

Closing Comments

CP25/18 provides a helpful articulation of, and degree of clarity over, the FCA’s views and expectations in respect of NFM – from both a COCON and FIT perspective.

There are multiple sequential steps to work through in order to perform a robust COCON analysis, in the context of NFM. It is important that firms faithfully follow this sequence – not least, as a failure to do so could result in a flawed outcome, resulting in potential FCA scrutiny and/or unfairness-based employee claims.

In a FIT context (and as summarised above), the FCA appears to continue to brush aside the Frensham Tribunal’s evidence-based conclusions. It will be interesting to see how the Tribunal responds to the FCA’s approach (assuming that, at some point, it will have to consider another relevant NFM case) – specifically, whether the Tribunal will insist that the FCA provides substantive evidence to support any asserted links between NFM and the FCA’s statutory objectives.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Financial Services practice.