FCA Final Policy and Consultation on Non-Financial Misconduct (CP25/18)

James Ross
Jul 4
4 min read

Executive Summary

This report analyses the Financial Conduct Authority's (FCA) Consultation Paper CP25/18, which finalises rules and proposes new guidance to combat non-financial misconduct (NFM), such as bullying and harassment, in the financial services sector.

The key development is the extension of the Code of Conduct (COCON) rules on NFM to cover all non-banking firms, with an effective date of September 1, 2026. This aligns standards across the industry, requiring all firms to treat serious NFM with the same gravity as financial misconduct.

Additionally, the FCA is consulting until September 10, 2025, on new Handbook guidance for COCON and the Fit and Proper (FIT) test. This proposed guidance aims to clarify the scope of NFM and explain how serious misconduct in an individual's private life can be relevant to their fitness and propriety.

For regulated firms, particularly non-banks, this necessitates a comprehensive review of internal policies, training, and due diligence processes. Firms must enhance their frameworks to manage NFM, mitigate legal and reputational risks, and foster a culture of accountability and safety. Proactive engagement in the current consultation is recommended to help shape the final, practical application of these rules.

1. Introduction

In July 2025, the Financial Conduct Authority (FCA) published Consultation Paper CP25/18, a significant follow-up to CP23/20. This paper finalises key rules and proposes further guidance to address non-financial misconduct—such as bullying, harassment, and violence—across the financial services industry.

This report provides a summary of the key policy developments within CP25/18 and offers an analysis of the primary implications for regulated firms. The FCA's actions signal a determined effort to ensure that serious NFM is treated with the same gravity as financial misconduct, reinforcing the importance of a healthy and safe workplace culture.

2. Key Provisions of the FCA Consultation Paper

The paper introduces a combination of final rules and new proposals designed to create a more consistent and robust framework for managing NFM.

Policy Updates and Final Rules

Extension of COCON Rules: The FCA is confirming final rules that extend the Code of Conduct (COCON) sourcebook's application of NFM to all non-banking financial services firms. This aligns the regulatory expectations for non-banks with those already in place for banks. This rule change will take effect on September 1, 2026.
Scope of NFM: The rules explicitly target serious misconduct that occurs in the course of carrying on a firm's business, including misconduct directed towards colleagues and other individuals.
Proposals Not Pursued: The FCA will not proceed with proposed changes to the Threshold Conditions (COND) or the Senior Management Arrangements, Systems and Controls (SYSC) sourcebooks, as it judges that existing rules are adequate.

Areas Under Consultation

New Handbook Guidance: The FCA is consulting on adding new guidance to the COCON and the Fit and Proper Test for Employees and Senior Personnel (FIT) sourcebooks. The goal is to provide greater clarity on how to apply the rules, particularly concerning the scope of NFM.
Conduct in Private Life: The proposed guidance clarifies the regulator's stance on conduct in an individual's personal life. While COCON rules do not generally apply to private life, serious NFM (e.g., conduct that is violent, abusive, or indicates a lack of integrity) can be relevant to a person's fitness and propriety under FIT. Firms are not expected to monitor employees' private lives proactively, but must assess relevant information that comes to their attention.
Consultation Period: The consultation on the draft guidance is open for responses until September 10, 2025.

Cost-Benefit Analysis

The FCA has provided updated cost estimates for the policy package.

COCON Rule Change: £25 million for implementation and £15 million in ongoing annual costs.
Combined Rules & Guidance: £75 million for implementation and £40 million in ongoing annual costs.
The FCA maintains that the benefits—including enhanced accountability, deterrence of misconduct, and improved workplace cultures—justify these costs.

3. Strategic Implications for Financial Services Firms

These regulatory changes have significant operational, legal, and cultural implications for all firms, particularly non-banks.

Expanded Regulatory Responsibility: Non-banking firms must undertake a comprehensive review of their internal policies, procedures, and training programs to ensure they meet the newly aligned NFM standards.
Enhanced Due Diligence: Firms must be prepared to conduct thorough assessments of NFM allegations. This includes developing clear protocols for evaluating the relevance of conduct that occurs outside the workplace, should it come to the firm's attention, and its potential impact on an individual's fitness and propriety.
Focus on Culture and Accountability: The FCA places strong emphasis on fostering healthy, inclusive, and psychologically safe workplace cultures. Firms will be expected to demonstrate proactive measures to prevent NFM, encourage staff to speak up without fear of reprisal, and take decisive action when issues are identified.
Increased Transparency in Reporting: The rules aim to prevent individuals with a history of misconduct from moving between firms undetected (the "rolling bad apples" issue). This will be achieved by ensuring that NFM rule breaches are disclosed in regulatory references, requiring firms to have robust internal reporting and disciplinary processes.
Navigating Legal and Reputational Risk: Failure to manage NFM effectively exposes firms to regulatory sanctions, financial penalties, and severe reputational damage. Firms must ensure their frameworks are compliant with both FCA regulations and UK employment law, including the Equality Act 2010.
Compliance Costs: Firms must budget for the costs associated with implementing these changes, which may include legal consultations, policy drafting, company-wide training, and potentially increased headcount for HR and compliance.
Importance of Shaping Guidance: The ongoing consultation on Handbook guidance is a critical opportunity for firms to seek clarity and influence the final text. Active participation can help ensure the resulting guidance is practical and effective, reducing future ambiguity and legal risk.