Syed Rahman of Rahman Ravelli considers the implications of the Financial Conduct Authority’s final policy statement on the matter.
The Financial Conduct Authority (FCA) has published its final policy statement on non‑financial misconduct (NFM).
The statement, published late last year, confirms FCA Handbook amendments and new guidance in the Code of Conduct for Staff sourcebook (COCON) and the Fit and Proper test for Employees and Senior Personnel (FIT).
These will come into effect on 1 September this year, as will the COCON 1.1.7FR rule; which makes it clear that serious misconduct such as bullying, harassment and violence towards a colleague which violates their dignity or creates an offensive environment is a matter of regulatory concern in non-banks as well as banks.
This final guidance (PS25/23: Tackling non-financial misconduct in financial services) aims to provide clarity for firms so that they can be confident when applying standards regarding workplace conduct.
The FCA has said the guidance covers how firms can apply its rules on minimum standards of behaviour for financial services employees, and the factors they should take into account when assessing whether someone is fit and proper for their role.
It says it has made some changes in response to feedback it received.
These include:
- Providing new examples and flow charts to support the application of the new rule.
- Clearer alignment with employment law.
- Clarification that managers' accountability is relative to their knowledge and authority.
- Clarification that firms are not expected to investigate trivial or implausible allegations or breach privacy law.
But the FCA states: “We can't provide guidance for every situation - firms will always need to exercise their judgement. The primary responsibility for preventing and dealing with non-financial misconduct lies with firms.’’
Changed
It was July last year when the FCA’s consultation paper on tackling NFM in financial services (CP25/18) was published. It changed the FCA’s rules to better capture NFM in non-banks and consulted on whether extra Handbook guidance was needed. CP25/18 confirmed the introduction of a new scope rule to apply to non‑bank Senior Managers and Certification Regime (SM&CR) firms so that serious work‑related misconduct between colleagues, such as bullying, harassment or violence could fall within COCON.
The final policy statement (PS25/23) contains the complete guidance to support application of the rule, while making clear how the framework will work across the differing firm types. Crucially, the guidance makes it clear that only misconduct considered “serious’’ will meet the threshold of the rule. This will involve assessing the nature, length and impact of the misconduct, the seniority of those carrying it out and whether it can be considered worthy of dismissal or as criminal behaviour.
The FCA’s approach acknowledges the workplace discrimination aspects of the Equality Act 2010. It has stated that this latest publication “brings our policy work on NFM to a close”. The next task is implementation.
The onus is now on firms to ensure that by 1 September they have completed the necessary training of staff, updating of policies and other required actions so that they meet the FCA’s NFM expectations. The FCA’s confirmed approach to NFM will not be applied retrospectively. But it represents a challenge for those it covers.
