- in United Kingdom
- within Litigation, Mediation & Arbitration, Transport and Antitrust/Competition Law topic(s)
On 12 December 2025, the FCA issued its anticipated Policy Statement regarding non-financial misconduct (NFM) in financial services (PS25/23).
PS25/23 comprises both: the FCA's finalised guidance on NFM; and its response to the feedback it received on its initial proposed guidance in the Consultation Paper 25/18 released in July 2025 (CP25/18).
We published our analysis of CP25/18 and draft guidance in July.
Calls for guidance
The FCA had said that it would only publish the guidance if it was wanted. As predicted, the desire for guidance on the changes to NFM rules was almost unanimous, with 95% of respondents agreeing that guidance was needed to help firms apply the NFM rules. We agree that this guidance is useful to have, even if not dealing with all scenarios.
Changes to the guidance since CP25/18
Additional clarity to the meaning of key terms
Bullying and Harassment
The FCA has now made clear that the terms 'bullying' and 'harassment' were used as a shorthand in CP25/18 to describe the kinds of conduct which may have the purposes or effects described in the new rule bringing NFM within scope of COCON for non-banks (COCON 1.1.7(4)F R), namely violating the subject's dignity; creating an intimidating, hostile, degrading, humiliating or offensive environment; or being violent).
The guidance released with the Policy Statement provides further detail on when the FCA considers that harassment may be a breach of Individual Conduct Rules 1 or 2 (acting with integrity or acting with due skill, respectively).
'Serious' misconduct
The FCA has responded to concerns from respondents that the meaning of 'serious' misconduct is unclear, as the FCA has made clear that only conduct which reaches this threshold will be a breach of COCON. The FCA has clarified that this is matter of judgement for firms, and the question the FCA will ask is whether the firm's judgement was reasonable. The FCA has noted that minor incidents of poor workplace behaviour that do not have the effects described in COCON 1.1.7(4)F R would not meet the standard of serious misconduct.
The impact on managers
The FCA has sought to downgrade the risks to managers for NFM occurring on their watch, setting out guidance on reasonable steps they might take. However, senior managers remain in scope of the FCA's rules to the extent that it was reasonable for them to have been aware of NFM, and they had the authority to act to prevent it from occurring.
Greater alignment with general employment law
Some respondents to CP25/18 noted their concerns about divergence between the FCA's proposals and general employment law, and that needing to comply with both would create additional burden for firms.
In response, the FCA has made some amendments to bring their guidance further into line with employment law, for example making clear that the purpose of conduct is treated equally as importantly as its effect.
However, the FCA has explained that the purpose of its regulations is distinct from that of employment law and so firms will still be required to consider whether they are meeting the standards of each. The potential for conflict or tension between the two means firms will need to tread carefully.
Understanding the scope of the new rule for non-banks
The FCA has provided a series of helpful flow charts demonstrating the general operation of COCON 1.1.7 F R and the complications that arise in certain edge cases. For example, it remains the case that if the role of neither the perpetrator nor the subject of the conduct is related to a firm's Senior Manager and Certification Regime (SMCR) financial activities, then any conduct that could otherwise be described as NFM will be out of scope of the conduct rules.
Private life vs work-related conduct
While the FCA has provided guidance as to what constitutes work-related conduct, which is relevant for COCON breaches, respondents to the consultation were concerned about parts of the draft guidance which appeared to indicate the need for burdensome investigations, pre-emptive notifications to the FCA and potential intrusions on individual's right to expression when considering Fitness and Propriety, which also considers matters outside the workplace.
The guidance contained in the Policy Statement has gone some way to allaying these concerns, clarifying that firms will not be required to investigate trivial matters, nor to constantly monitor social media or individuals' general private lives – albeit with the caveat that a number of smaller issues can still add up to a breach. The reference to a requirement to report to the FCA any unsubstantiated comments, even if the firm is unable to prove them, has been removed but references to existing obligations to notify matters relating to the fitness and propriety of Senior Managers has been retained. The FCA has also confirmed that it is considering opportunities to simplify the circumstances in which firms have to report conduct rule breaches as part of its wider work on SMCR.
However, the FCA has not gone so far as to suggest that lawfully expressed views on social media may not be relevant to fitness and propriety, nor to say that firms are never required to report unsubstantiated assertions. This will remain an area of difficulty and firms will need to consider where intrusions into the private lives of staff are necessary.
Next steps
The guidance will come into force on 1 September 2026 at the same time as the new rule at COCON 1.1.7FR. Firms have a duty under section 64B FSMA to notify conduct rules staff about the rules and take all reasonable steps to make sure they understand how they apply to them (COCON 2.3).
Judgement is required
While the FCA has sought to provide additional guidance to support firms to make fair and consistent decisions, the FCA's press release on 12 December acknowledged that guidance could not be provided for every situation and so firms 'will always need to exercise their judgement'. This means that internal Legal, Compliance and HR functions will need to ensure they are joined up and have appropriate decision-making processes in place (and continue to stress test them once in place).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
