FCA Publishes Response to NFM Public Consultation

On 12 December, the Monetary Conduct Authority (FCA) lastly issued its official response to the general public session on non-financial misconduct (NFM). This was issued via a Coverage Assertion PS25/23finalising new binding regulatory guidelines and accompanying official steering on NFM.

The Coverage Assertion

79 respondents contributed to the session, together with Squire Patton Boggs. In the end, we’ve got the ultimate guidelines and steering, which might be binding on all FCA-regulated companies from 1 September 2026. Or so we thought…

The FCA maintains that it isn’t attainable “to supply enoughexamples or case research” to deal with the “wide selection of situations” that companies could encounter, although in all honesty it doesn’t appear to have tried that onerous. The underside line is, whereas this official steering is useful to a level in figuring out how companies ought to assess and deal with NFM, they may nonetheless be left largely to their very own gadgets to analyse and report cases of NFM towards a backdrop of ever rising scrutiny and strain from the FCA to stamp out poor cultural habits and behavior within the sector.

As earlier than, the scenario stays that every case must be thought-about on a case-by-case foundation. As a substitute of case research and illustrative examples, the FCA has offered flowcharts and resolution bushes on the said grounds that every case is exclusive, giving case research might mislead companies and companies have to train their very own judgment. Completely all of which might have been accommodated an important deal extra helpfully with various appropriately caveated case research. We don’t subscribe to the view that as a result of the FCA can’t present case research for each attainable scenario, the following most useful factor to do will not be present any in any respect. “Exercising their very own judgment” is all effectively and good, however the place the results of getting that unsuitable may be materials, you’d have hoped that the FCA would have sought to make that judgement as knowledgeable as attainable.

This Coverage Assertion offers roughly 9 months for related companies to get their processes and procedures in place, and to verify all related workers and managers perceive the foundations. It’s a time of amplified scrutiny and we predict a lot trial and error might want to happen from when the steering takes impact.

Provided that the Employment Rights Act 2025 gained royal assent on 18 December, and phased implementation will start in April this 12 months, there might be some overlap with the brand new employment legislation framework, together with the extension of tribunal limitation intervals from three to 6 months and the upper obligation to forestall sexual harassment (all cheap steps) together with towards third events, from October 2026.

The FCA states that if companies’ judgements are cheap as as to whether misconduct is critical sufficient to quantity to a breach, then that can adjust to their guidelines. This nonetheless doesn’t present the readability companies might need anticipated from this closing publication. The hope should be that the FCA’s method to reasonableness is akin to that of the Employment Tribunal, i.e. that there’s in impact a variety of cheap responses to a selected occasion of NFM, and that offered the employer stayed inside that, it shouldn’t matter that the FCA might need accomplished one thing completely different. Actually, this was the suggestion we made in our response to the session.

Corporations might want to guarantee compliance with two frameworks on the similar time: a extra employee-friendly set of employment legislation rights and the FCA’s strengthened guidelines and a spotlight to NFM. Casual warnings won’t must be reported, however any disciplinary motion in response to NFM, together with issuing a proper written warning, suspension or dismissal or remuneration clawback, might be reportable. However – what occurs if a agency wrongly assesses an occasion of NFM? The FCA can use its supervisory and enforcement powers to analyze companies, with an array of sanctions at its disposal, together with a failure to report the behaviour itself. What is way much less clear, however no much less important to the truthful operation of those guidelines is how the FCA will cope with circumstances the place, maybe via extreme worry of those new guidelines, employers deem one thing to be sanctionable NFM and report it as such the place on any cheap or goal view, that threshold was simply not met.

Employer preparation might want to embody reviewing and revising disciplinary and conduct insurance policies, in addition to coaching managers on NFM duties. Whereas the FCA has stated it gained’t retroactively apply the brand new obligation, companies are suggested to make sure their practices are compliant with the Code of Conduct (COCON) and may undertake danger assessments internally to make sure good observe in readiness and may undertake danger assessments internally to make sure good observe in readiness.

Ten Takeaways from the Coverage Assertion

We summarise a few of the key components of the FCA’s Coverage Assertion under:

1. The COCON rule change bringing non-banks into the scope of the COCON is unchanged and can nonetheless take impact from 1 September 2026, along with the accompanying steering.

2. The FCA says: “Non‑monetary misconduct’ contains a variety of behaviour, basically any misconduct not of a clearly monetary nature. It isn’t attainable to checklist all varieties of misconduct that may quantity to a breach of COCON (or of health requirements in FIT), as every case requires particular person judgement based mostly on its particular circumstances”.

3. Nevertheless, NFM will embody harassment of a fellow member of the workforce, aligning intently with the definition of harassment below the Equality Act 2010, though it’s set a lot broader and isn’t restricted to protected traits. That is in order that “good relations” may be fostered between those that share a protected attribute and people who don’t.

Each the aim and impact might be taken under consideration. The next instance has been offered in respect of intent: hostile communication which is intercepted earlier than it’s delivered can nonetheless be a breach of the COCON whether it is intentional.

We take this to imply {that a} colleague writing a hostile or intimidating e-mail, or Groups message constitutes a breach, even when it stays unsent. It’s clear that the intent issues significantly, however this leaves open the evident query of how this may be monitored given it won’t be simple to see what people are writing up of their “drafts’” or in any other case.

4. The next conduct is in scope as a attainable breach of the COCON:

a. Conduct at work places, together with at workplaces

b. Conduct via firm-related communications

c. Conduct at shopper workshops or occasions for the needs of monetary companies, e.g. coaching occasions, award ceremonies or workshops organised by shoppers

d. Work-related social media exercise directed at colleagues or regarding work functions

Because of this conduct is in scope if the NFM pertains to the efficiency of the person’s position in monetary companies, given the above are all inherently associated to efficiency of capabilities.

5. Importantly, the next are NOT inside scope of the COCON:

a. Fully non-public and private conduct with no work connection

b. Non-public issues or disputes between people which isn’t associated to work

Because of this non-public life is totally out of the scope of COCON and the FCA can’t regulate purely private conduct, however it could actually nevertheless be related when assessing health and propriety for any particular person. This isn’t new and has been the case for a while.

6. A breach of the COCON can happen the place there may be deliberate motion, recklessness or turning a blind eye (“for instance, being conscious that one thing is probably going however avoiding confirming it”). Carelessness won’t itself be sufficient.

7. A breach of the COCON in relation to due ability, care and diligence is assessed objectively. This may imply that managers should intervene to cease bullying in the event that they know, or ought to fairly have recognized about it and have authority to behave. Due to this fact, if a supervisor couldn’t fairly have recognized or if they didn’t have authority to behave, they won’t be culpable. Managers aren’t outlined however the FCA have clarified it isn’t restricted to a line supervisor solely. Small-scale fraud may even be a breach of due care, ability and diligence.

8. The principles additionally lengthen to managers in relation to the next:

a. Failing to function the agency’s insurance policies, methods and controls to detect and stop NFM, and if they’ve authority, to arrange and preserve such insurance policies, methods and controls.

b. Failing to take severely or to deal appropriately with complaints of related NFM

c. Failing to take cheap steps to supply a protected surroundings for individuals to boost issues about such therapy

9. Seriousness stays a key requirement. The FCA has clarified that minor incidents (e.g. inconsiderate feedback and remoted rudeness) won’t breach the COCON.

10. Single incidents can represent a breach if sufficiently critical, e.g. a single incident of violence, however as throughout the entire NFM piece, context is vital.