The regulator is re-evaluating whether to introduce new guidance to assist firms in this challenging area.
On 2 July 2025, the FCA published its long-awaited proposed next steps on addressing non-financial misconduct (NFM) in financial services. In a joint Consultation Paper and Policy Statement (CP25/18), the regulator is re-consulting on its proposed guidance on NFM in the Code of Conduct sourcebook (COCON) and Fit and Proper test for Employees and Senior Personnel sourcebook (FIT). The FCA also confirms plans to amend the scope of COCON so that it captures serious instances of bullying, harassment, and similar behaviour towards fellow employees.
The FCA originally consulted on proposals regarding NFM in September 2023, as part of its wider consultation on diversity and inclusion (see this Latham Client Alert). The FCA confirmed in March 2025 that it would not take forward the work on diversity and inclusion but that it would proceed with its work on NFM (see this Latham blog post).
Having faced recent criticisms of scope creep, the FCA is keen to emphasise in the paper that the NFM proposals it consulted on received strong support, with respondents generally agreeing that NFM is a regulatory issue.
Scope of COCON
In the Policy Statement element of the paper, the FCA confirms that it will change the scope of COCON as it applies to firms other than banks, to clarify that serious misconduct, such as bullying, harassment, and violence between staff, is of regulatory concern. This change will align expectations for all firms, as presently the scope is broader for banks. However, due to statutory limitations on the boundary of the Conduct Rules, conduct in a person’s private or personal life will remain out of scope of COCON. The FCA states that it expects this change will initially lead to an increase in notifications of breaches of the Conduct Rules, although the paper also seems to acknowledge that some non-banks did not appreciate the limitation on the current scope.
The regulator reports that it received strong support for this proposal overall, although feedback raised concerns about a number of matters, including potential inconsistency and divergence from employment law. As a result, the FCA has revised the rule to align it more closely with employment law. However, the FCA maintains that the scope is wider than employment law intentionally, as it does not want to limit the rule to conduct related to a “relevant protected characteristic”.
Guidance on NFM
The FCA consulted on proposed additional guidance for COCON and FIT in September 2023 to clarify expectations around how firms should address instances of NFM in the context of the Conduct Rules and fitness and propriety. Given that feedback suggested that new guidance could have both benefits and drawbacks, the FCA is reconsidering whether additional guidance is needed.
The FCA reports that respondents strongly supported new guidance on how NFM can constitute a breach of the Conduct Rules. However, some respondents raised concerns about the volume and complexity of the FCA’s proposed guidance. Some respondents also highlighted that the proposed guidance could lead to divergence from employment law, inconsistent application, and unfair outcomes. In response, the FCA has prepared a revised draft of its guidance. Revisions include more clearly aligning the guidance with employment law, providing additional examples, and removing or rewriting some elements that respondents found unhelpful or confusing.
Respondents also supported new guidance on how NFM affects fitness and propriety. However, they asked the FCA to clarify how it would expect firms to deal with NFM in a person’s private life, the intersection between work and private life, and some potentially subjective language in the draft guidance. In response, the FCA aims to clarify that it does not expect firms to monitor their employees’ private lives and would generally expect firms to rely on formal findings in relation to an individual. At the same time, the FCA would expect firms to look into allegations of NFM that come to their attention. The FCA also proposes to replace certain subjective terms (such as “morally reprehensible”) with more neutral language.
Notably, the FCA has revised the part of the proposed guidance that stated misconduct in a person’s private or personal life would be relevant to fitness and propriety, even if there is little or no risk of it being repeated at work. It now suggests that conduct may be relevant if it shows a willingness to disregard ethical or legal obligations, abuse a position of trust, or exploit others’ vulnerabilities. Although the FCA stresses that a case will always turn on its particular facts, the revised guidance suggests that a custodial sentence (even if suspended) will likely indicate that misconduct in private life is sufficiently serious to influence fitness and propriety. While the revisions would make the guidance more targeted, it is clear that the FCA still wishes to promote a different line on NFM than that taken on occasion by the Upper Tribunal.
Finally, the FCA has added guidance on social media in response to requests for clarification in this area. It proposes to explain in the guidance that, in principle, a person can lawfully express in their private or personal life their views on social media, even if those views are controversial or offensive. However, social media activity may become relevant to fitness and propriety if it indicates a real risk the person will breach the regulatory system’s requirements and standards, such as threats of violence or clear involvement in criminal activities.
Threshold Conditions and Regulatory References
The FCA will not proceed with proposals to amend the Threshold Conditions (COND) and Senior Management Arrangements, Systems and Controls (SYSC) sourcebooks. It had proposed to amend COND so that guidance on the Suitability Threshold Condition would make it clear that NFM and discriminatory practices in firms are relevant to the FCA’s assessment of firms’ suitability to undertake regulated activities. However, in light of concerns about the definition of “discriminatory practices” and the relative costs and benefits, the FCA has decided not to make this change.
The FCA also proposed to update the guidance on regulatory references in SYSC to clarify that a firm may need to provide information on NFM, or misconduct outside work, to a firm requesting a reference. Considering the feedback it received, the FCA has decided that the existing rules and guidance sufficiently capture this. These rules require firms to disclose all breaches of the Conduct Rules for which disciplinary action was taken and provide any other information they reasonably believe to be relevant to the fit and proper assessment.
Next Steps
The consultation element closes on 10 September 2025, and the FCA plans to set out its final approach to the guidance later this year. The FCA makes clear that it only intends to proceed with the proposed guidance if there is clear support for this approach. The amendment to the scope of COCON will apply from 1 September 2026, to give firms time to accommodate the new guidance in parallel, if confirmed.
While there is a difficult balance to strike, firms will likely find the FCA’s proposed guidance more useful than none and more focussed than the previous draft. Although guidance of this nature will always raise questions of uncertainty, and cannot possibly cover every scenario, the FCA intends that it will promote more consistent decision-making within and amongst firms. Some managers are likely to find it helpful, while others may find it makes assessing the facts “on the ground” when coming to a decision more difficult.
