The Financial Conduct Authority (FCA) is taking decisive steps to stamp out bad behaviour in Britain’s financial sector by extending its rules on non-financial misconduct beyond the banking industry.
Concerns about the toxic culture of financial firms have risen up the regulatory agenda in recent years, with the FCA under pressure to figure out how to curb it. The regulator found last year that reports of non-financial misconduct in Britain’s finance industry had surged almost 60% over three years to 2023.
From September 2026, around 37,000 financial firms will be required to report cases of poor behaviour involving bullying, harassment and discrimination, even if that misconduct occurs outside the workplace. Under the new rules, such behaviour will constitute a breach of the regulatory code of conduct and must be disclosed in the same way as financial misconduct.
The new rules aim to prevent individuals from evading accountability by switching firms. The FCA said it hopes the changes will foster greater consistency across the industry and rebuild public trust in UK financial services.
The final rules are still subject to consultation until September 2025. “At this point, firms remain unclear exactly what they need to do to satisfy the new rules on preventing non-financial misconduct,” says Samuel Brewer, a partner in the financial services department at Travers Smith, a UK law firm. But this is a positive sign that the FCA has listened to feedback and has decided to consult further, he added.
Thorny issues for firms include how serious harassment needs to be to constitute a breach of FCA rules and how far off-duty behaviour impacts the fitness and propriety of more senior staff.
“Firms might want to use the delay to check their existing processes around harassment and to make sure that HR professionals and legal and compliance staff are fully aligned for when conduct issues arise,” Brewer says.
Technical clarifications welcomed
The FCA has long grappled with how best to regulate non-financial misconduct as it often involves subjective interpretations of behaviour, making it tricky to assess. The regulator recently pulled back from setting binding diversity rules following significant criticism from the industry and has pared back some of its original proposals on non-financial conduct.
“From an initial read it appears the FCA has listened well to the feedback it received from the sector, resulting in significantly improved proposals,” says Wendy Saunders, partner and co-head of financial services at Lewis Silkin, a law firm. “It makes good sense for all firms to be subject to the same regulatory standards of behaviour,” she says, adding that this levels the playing field for recruiting talent and providing a consistent level of protection.
The new rules have also helped to clarify the standards to which individuals will be held in their private life. That a person’s private life will no longer be assessed against a subjective standard of being disgraceful or morally reprehensible has come as a huge relief for many. “This could have caused all sorts of problems” says Saunders, such as firms imposing excessively high standards of behaviour to provide themselves with regulatory protection. “Who would want to put their reputation on the line by being assessed against such an arbitrary and capricious standard?”
Arabella Ramage, legal and regulatory director at Lloyd’s Market Association, is pleased that the FCA has recognised that the number of incidents reported does not necessarily reflect a negative culture. “For example, a high number of reported incidents could reflect a healthy speak-up culture.”
The reduction in implementation costs, indicated by the FCA’s new cost-benefit analysis, is also welcomed, according to Ramage. “However, we will need to determine with our members if the lines have been drawn appropriately in this difficult area and also look at this through the lens of proportionality for our industry.”
Will this break the cycle?
Whether the new rules will go far enough in driving tangible culture change remains unclear. They did not go as far as some expected, with the regulator stopping short of making them a “threshold condition” – under which firms must meet minimum requirements to stay FCA-authorised.
“This approach challenges business to build a culture where ethical behaviour is consistently upheld and while these rules are a strong step forward, whether they are enough to break any cycles of toxic culture will ultimately depend on how seriously firms take the implications,” says Katharine Leaman, CEO of Leaman Crellin, a regulatory compliance consultancy and advisory board member at Skillcast, a regulatory compliance specialist training provider.
“Regulation can set expectations, but real change requires leadership buy-in, water-tight internal governance and a willingness to tackle uncomfortable truths. These new standards raise the bar, providing a touchstone for accountability and a catalyst for cultural transformation,” she adds.
Now is the time to prepare for a world where poor behaviour is no longer just an HR issue, it is now a regulatory compliance issue. That said, firms should not wait for the publication of further guidance before addressing non-financial misconduct.
The Financial Conduct Authority (FCA) is taking decisive steps to stamp out bad behaviour in Britain’s financial sector by extending its rules on non-financial misconduct beyond the banking industry.
Concerns about the toxic culture of financial firms have risen up the regulatory agenda in recent years, with the FCA under pressure to figure out how to curb it. The regulator found last year that reports of non-financial misconduct in Britain's finance industry had surged almost 60% over three years to 2023.
From September 2026, around 37,000 financial firms will be required to report cases of poor behaviour involving bullying, harassment and discrimination, even if that misconduct occurs outside the workplace. Under the new rules, such behaviour will constitute a breach of the regulatory code of conduct and must be disclosed in the same way as financial misconduct.
