December 2023


Bullying, sexual harassment and discrimination: toxic workplace behaviours the FCA has increasingly emphasised in recent years are unacceptable. However, despite the FCA’s now well-known phrase that “non-financial misconduct is misconduct plain and simple”, the regulatory regime has not (to date) been well set up to tackle non-financial misconduct in a consistent manner.


With the FCA Handbook being focused on financial misconduct it has been difficult for firms to know how to deal with cases of non-financial misconduct, with some firms taking a hard line and others continuing with a more “old school” approach to tackling such issues. Indeed, even where enforcement action has been considered by the regulator (and then the Upper Tribunal) in cases of non-financial misconduct, there has not been a consistent approach taken.


All of which has left the financial services sector in a state of rather considerable confusion as to how to address these issues in practice. This is of particular concern given the potential impact of these matters on individuals’ careers and further whether a firm meets the FCA’s suitability criteria.


Happily, the FCA has now recognised this lacuna in its guidance and is now consulting on introducing specific guidance to cover non-financial misconduct in the conduct rules, fitness and propriety assessments, as well as suitability criteria for financial services firms. Introducing such provisions, should help to stop some taking an over-zealous approach and force the hand of those firms who have chosen (perhaps unwisely) to take a more relaxed approach to managing these issues to date.


However, although the consultation is due to close this month, we will likely have to wait until 2025 for any changes to come into effect.


In the meantime, what should firms focus on? Here are some top tips to consider when dealing with non-financial misconduct:


  • Firms must have in place robust processes to identify and handle allegations of non-financial misconduct when they arise and cannot wait on the expected new guidance.
  • It is essential that where a non-financial misconduct allegation is made, the accused is treated fairly, including carrying out a fair investigation and (if appropriate) disciplinary process. A serious non-financial misconduct allegation has the potential to be career-ending for the accused.
  • Not every act of misconduct will lead to a breach of a conduct rule or a negative fitness and propriety assessment, however it is important that this potential result is considered.
  • Firms should avoid using settlement agreements to agree “resignation” exits for employees who have committed non-financial misconduct. Such agreements can be problematic both from a remuneration code and regulatory reference perspective.
  • It is important to take proactive steps to protect complainants from victimisation and retaliation. As well as making it clear to the accused that such action will not be tolerated, it is sensible to look at longer term monitoring, for example checking how the complainant is treated in appraisal and promotion processes, as well as in future remuneration decisions.
  • A senior manager’s failure to deal with complaints of non-financial misconduct (for example bullying or discrimination) may mean the senior manager themself may be in breach of a conduct rule or their own fitness and propriety may be called into question. This potential consequence can be an important weapon in the arsenal of HR, compliance and legal to press the importance of taking action in this area.
  • Where a non-financial misconduct allegation is upheld, it is essential that HR, legal and compliance consider whether the misconduct has been allowed to happen due to a failure in the firm’s culture as a whole and whether action could have been taken to prevent it. If so, any systemic corrective changes should be implemented going forward.