Financial Regulator (FCA) to Expand Misconduct Regulations Past Banking Industry to Include Other Sectors

Financial Regulator (FCA) to Expand Misconduct Regulations Past Banking Industry to Include Other Sectors

The UK's Financial Conduct Authority (FCA) has announced new regulations aimed at tackling non-financial misconduct (NFM) beyond the banking sector, extending its reach to a broader range of financial firms. These new rules, which come into effect on September 1, 2026, will bring approximately 37,000 additional regulated firms under the FCA's purview, including payment firms, e-money institutions, investment exchanges, and credit rating agencies (with the exception of those without Part 4A permission).

The new rules specifically target serious misconduct issues such as bullying, harassment, and violence within financial firms, addressing long-standing concerns about workplace culture and behaviour in the financial services sector. This move is in response to criticisms, including a 2024 Treasury Select Committee report that highlighted the prevalence of serious sexual harassment and bullying in financial services and poor handling of such issues by firms.

To help firms subject to the Senior Managers & Certification Regime (SMCR) better understand how to apply these conduct rules and the fitness and propriety standards, the FCA has issued a consultation paper (CP25/18). The consultation, which remains open until September 10, 2025, is expected to result in final guidance by the end of 2025.

The FCA's goals with these new rules are threefold: to provide firms with confidence to take robust action against serious misconduct, to drive consistency across the entire financial sector, and to clarify when NFM breaches FCA rules. The FCA also aims to promote healthier, more inclusive workplace cultures and restore trust in financial services.

The new rules will require firms to report incidents like serious bullying and harassment to the FCA, increasing transparency and accountability. This could lead to more regulatory scrutiny and potential sanctions for failures to manage workplace misconduct properly. Firms may need to review and strengthen their internal policies and training related to conduct and ethics to comply effectively.

By addressing NFM more comprehensively across the sector, the FCA expects to reduce behaviours that contribute to misconduct beyond the workplace, improving overall market integrity and consumer trust in financial services. Anu Chhabra, founder of the Women in Finance Group, stated that toxic cultures like bullying and discrimination often correlate with risky financial behaviour, damaging reputations and investor confidence.

Sarah Pritchard, the FCA's deputy chief executive, stated that poor behaviour like unchallenged bullying or harassment can raise questions about a firm's decision-making and risk management. The FCA's initiative does not specifically target the banking industry alone but aims to cover a broader spectrum of financial firms.

Reports of bullying, discrimination, and other non-financial misconduct in Britain's finance industry have risen by nearly 60% over three years to 2023, according to an FCA study. The proposed rules will apply to around 37,000 regulated firms, including hedge funds, asset managers, and consumer credit firms, starting from September 1, 2026.

While the FCA has clarified the conduct rules, the technical adjustments may not substantially impact firms, according to some legal experts. Lorraine Johnston, a partner at Ashurst, stated that the new rules may not represent a significant shift, as the technical adjustments may not substantially impact firms, except in the most contentious cases.

However, the FCA's move to broaden its rules is a significant step towards increasing consistency and enhancing trust in financial services. The FCA's actions are aimed at addressing the culture within firms, as behavioural issues like bullying or harassment can indicate deeper problems. The FCA's decision to expand its rules is not a one-time response but is likely part of an ongoing effort to maintain and improve the integrity of the financial services sector.

In light of the new regulations, wealth management firms, along with other financial entities like hedge funds and consumer credit firms, are expected to enhance their internal policies and training related to conduct and ethics to successfully report and manage incidents such as serious bullying and harassment, starting September 1, 2026. The Artificial Intelligence (AI) integration in wealth management could potentially aid firms in addressing these issues, promoting healthier workplace cultures and ultimately restoring trust in financial services.

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