Key takeaways
Non-financial misconduct is now a regulatory issue, not just an HR matter
From 1 September, serious misconduct such as bullying and harassment can trigger FCA Conduct Rules, fitness and propriety and reporting considerations.
Investigations must go beyond establishing the facts
Firms need to assess regulatory implications, manager accountability, reporting obligations and whether conduct raises broader fitness and propriety concerns.
Strong governance and documentation are essential
Clear policies, effective triage, thorough record keeping and well-reasoned decision making will be critical in demonstrating compliance.
From 1 September 2026, serious workplace misconduct can no longer be viewed solely through an employment law lens. The Financial Conduct Authority (FCA)'s new non-financial misconduct (NFM) framework means that behaviour previously dealt with as an internal HR matter may now carry significant regulatory consequences.
For FCA-regulated firms, this represents a significant shift. Allegations of bullying, harassment or other serious misconduct may now give rise not only to disciplinary and employee relations issues, but also questions around Conduct Rule breaches, fitness and propriety, manager accountability and reporting to the FCA.
Practically the challenge is ensuring that concerns are identified, assessed and investigated appropriately when they arise.
Who does this affect?
The changes apply to firms within the Senior Managers and Certification Regime (SMCR), including banks, insurers, asset managers, wealth managers, private equity firms, hedge funds and brokers. Most FCA-authorised firms will already be familiar with the Conduct Rules (COCON) and fitness and propriety requirements (FIT).
What has changed?
The FCA has expanded the scope of COCON for non-bank firms so that certain forms of serious non-financial misconduct can now fall within the regulatory framework.
The rules cover serious workplace misconduct such as:
bullying
harassment
unwanted conduct that violates a person's dignity or creates intimidating, hostile, degrading, humiliating or offensive environment
violence in the workplace.
Importantly, the FCA's definition is broader than many employers expect. While it mirrors aspects of the Equality Act harassment provisions, it is not limited to protected characteristics. Conduct can fall within the FCA framework even where there is no allegation of discrimination.
The rules are not retrospective and only apply to conduct occurring on or after 1 September 2026. However, historic conduct may still be relevant when considering whether an individual is fit and proper to perform a regulated role.
Why investigations have become so important
The FCA has been clear that it expects firms to exercise judgement, document their reasoning and demonstrate how they reached decisions.
That means an investigation can no longer simply answer the question:
Did the conduct happen?
Instead, investigations need to consider:
whether the conduct was work-related
whether it was sufficiently serious
whether COCON may have been breached
whether FIT concerns arise
whether managers took reasonable steps
whether there are accountability issues
whether it needs to be reported to the FCA.
Those questions require careful analysis, proper evidence gathering and a well-reasoned decision-making process and increasingly need to be conducted or overseen by people who understand not only employment law but also the regulatory framework.
The risks of getting it wrong
A poorly handled investigation can create problems on multiple fronts, from employment claims through to regulatory scrutiny of both the underlying complaint and how the organisation responded to it. Given that the outcome may ultimately affect an individual's ability to remain in a regulated role, it is important to ensure investigations are conducted properly from the outset.
The FCA is not requiring firms to investigate every disagreement between colleagues or every allegation raised about an individual's private life. However, firms must be able to demonstrate that they properly considered the issue and reached a reasonable decision.
A practical example: when an HR issue becomes a regulatory issue
Imagine a situation where a senior employee in an SMCR firm has developed a reputation for belittling junior team members.
Individuals regularly describe the person as difficult to work with. Complaints have been raised informally over several years. HR is aware of concerns, managers have heard comments and colleagues have quietly avoided working with the individual.
Eventually, a formal complaint is made alleging repeated exclusion from opportunities and inappropriate behaviour.
What was once viewed as an employee relations issue suddenly becomes much wider.
The firm may need to consider:
whether recent conduct falls within the FCA framework
whether there is evidence of a pattern of behaviour
whether the individual's fitness and propriety are affected
whether managers appropriately escalated earlier concerns
whether accountability questions arise in relation to those managers.
The investigation is no longer focused solely on the alleged misconduct. It also needs to examine who knew about the concerns, when they became aware of them and what action was taken.
Social media and private life: not always straightforward
Another area causing uncertainty is conduct outside work.
The FCA has made clear that firms are not expected to police employees' private lives. COCON generally focuses on work-related behaviour.
However, private conduct may still be relevant to fitness and propriety in certain circumstances.
For example, if concerns arise about an employee's online behaviour, firms may need to consider:
whether there is any connection to work
whether colleagues were targeted
whether the conduct demonstrates disregard for legal or ethical obligations
whether it indicates a risk of similar behaviour in the workplace.
The fact that conduct is controversial or unpopular does not automatically make it a regulatory issue. The key question is whether there is a genuine regulatory concern requiring investigation.
Non-financial misconduct FAQs
Do we need a formal grievance before investigating?
No. One of the biggest misconceptions is that an issue only becomes relevant once a formal complaint is submitted.
If managers, HR or compliance teams are aware of ongoing concerns, they may still need to consider whether some form of investigation or review is required. The FCA's focus is on what organisations knew and how they responded.
Are managers personally exposed?
Potentially, yes. Managers can face scrutiny if they were aware of serious concerns and failed to take reasonable steps within their authority to address them. The test is not whether they acted perfectly, but whether they acted reasonably in the circumstances.
Do all complaints require a full regulatory investigation?
No. The FCA acknowledges that firms should not investigate trivial, implausible or irrelevant allegations. Effective triage is critical to deciding whether a matter is an HR issue, a disciplinary matter, a COCON issue, a FIT concern or a combination of several of those categories.
Does historic misconduct still matter?
Yes. While conduct before 1 September 2026 will not fall within the amended COCON, it may still be highly relevant when assessing an individual's current fitness and propriety.
What should firms be doing now?
While investigations sit at the heart of the new framework, firms should be taking a broader look at how non-financial misconduct is identified, assessed and managed across the organisation.
Key areas for consideration
Policies and procedures: review conduct, disciplinary, grievance and escalation policies to ensure they reflect the FCA's approach to non-financial misconduct, including how seriousness will be assessed and when matters should be escalated beyond HR. Clear roles should be established between HR, Compliance and Legal teams.
Investigations and complaint handling: ensure allegations are triaged promptly and dealt with through a structured and proportionate process. Investigations should have clear terms of reference, appropriate investigator seniority and independence, robust evidence gathering and a well-documented decision-making process. Consistency of approach will be critical.
Training managers and senior leaders: managers need to understand what may constitute serious non-financial misconduct, when concerns should be escalated and how to demonstrate that they have taken reasonable steps in response. COCON training should be refreshed to reflect the new framework.
COCON breach assessments and reporting: firms should establish a clear and consistent process for assessing whether behaviour potentially engages Conduct Rule 1 (integrity) or Conduct Rule 2 (skill, care and diligence), and whether any reporting obligations or regulatory reference requirements are triggered.
Fitness and propriety assessments: existing fitness and propriety processes should be reviewed and tested against non-financial misconduct scenarios. Firms should be able to demonstrate how factors such as seriousness, remediation, future risk and public confidence have been taken into account.
Governance, record keeping and audit trails: firms should maintain clear records of concerns raised, decisions taken, investigations conducted and the rationale behind action or inaction. Thorough documentation is likely to become increasingly important as the FCA's supervisory focus moves from the rules themselves to how firms apply them in practice.
How we can help
The FCA's framework places investigations at the heart of non-financial misconduct compliance.
We support clients with manager and senior leader training, helping them understand their responsibilities, recognise potential regulatory issues and respond appropriately when concerns are raised.
Where allegations involve senior individuals, potential COCON breaches, FIT concerns or questions of accountability, we are experienced independent investigators and can provide an impartial, credible and evidence-based process that will withstand regulatory and employment tribunal scrutiny.
We also help firms review and update policies, procedures and governance frameworks to ensure they align with the FCA's expectations and advise on the practical application of the new regime, including COCON assessments, FIT issues, disciplinary action, regulatory references and engagement with the FCA.
Whether you need training, strategic legal advice or an experienced independent investigator, our Employment and Immigration team can support you at every stage. Contact us today to discuss how we can help.
