July 3, 2026 FCA sharpens expectations on non-financial misconduct: from policy statement to operational reality
After a prolonged period of consultation, the Financial Conduct Authority has now settled its position on non-financial misconduct. The publication of PS25/23 in December 2025 did more than close a policy loop. It signalled a deliberate shift in how behavioural issues are expected to be treated within the regulatory framework.
While the broader diversity and inclusion proposals did not proceed, the FCA has instead focused on embedding non-financial misconduct more firmly within existing regimes. The introduction of a new rule in COCON, aligned across both banks and non-banks, together with updated guidance on the Fit and Proper test, brings a level of clarity that firms have been seeking. What it does not bring is simplicity.
For many of the organisations we support, the principle is largely uncontroversial. The complexity lies in translating that principle into clear, defensible decisions in practice.
Where conduct becomes regulatory
Non-financial misconduct is not a new concept. Firms have long grappled with issues such as bullying, harassment and inappropriate behaviour. What has changed is the regulatory framing.
The FCA has made clear that these behaviours, where sufficiently connected to an individual’s role, can engage conduct rules and fitness and propriety assessments. In effect, questions of dignity, respect and personal conduct are no longer contained solely within HR processes. They now sit alongside regulatory considerations of integrity and trustworthiness.
That creates a more nuanced decision point. At what stage does poor behaviour move from being a performance issue or internal disciplinary matter into a potential breach of COCON? There is no bright line test. The guidance points to factors such as seriousness, impact, and whether conduct creates a hostile or degrading environment. But judgment remains central.
This is often where we see hesitation in practice. Firms are conscious of the implications of labelling behaviour as regulatory misconduct, particularly given the potential consequences for individuals’ careers. Equally, under-classifying serious issues now carries regulatory risk of its own.
The reality of “consistency”
A consistent theme in the FCA’s narrative is the need for consistent treatment across firms. In isolation, that is a straightforward expectation. Within organisations, it is more complex.
Most firms already have the building blocks in place. Dignity at work policies, grievance procedures, whistleblowing frameworks and disciplinary processes are well established. The challenge is that these systems were not designed with regulatory alignment in mind.
The new guidance effectively requires these parallel processes to converge. Conduct rule training needs to move beyond financial scenarios and reflect real workplace behaviours. HR and compliance functions must develop a shared language for identifying when issues may engage regulatory rules. Investigations must be sufficiently robust to withstand regulatory scrutiny, not just internal review.
A common operational gap is fragmented record keeping. It is not unusual to see HR holding investigation notes, compliance maintaining separate conduct logs, and senior managers responsible for culture lacking a consolidated view. Under the FCA’s heightened focus, this fragmentation becomes a governance weakness in itself.
Consider a simple but realistic scenario. A line manager is reported for repeated belittling of junior staff. Historically, this might have been handled as a localised HR issue. Under the new framework, firms must assess whether the behaviour reflects on the individual’s integrity or contributes to a culture inconsistent with conduct rules. That assessment needs to be structured, documented and capable of supporting future fitness and propriety decisions. Informal notes and loosely documented outcomes are unlikely to meet that standard.
September 2026 is closer than it looks
The new COCON rule will take effect on 1 September 2026 and is therefore an approaching deadline. Policy cycles, training programmes and system changes rarely move quickly, particularly in larger or more complex organisations.
Most firms we work with have started with a gap analysis. The objective is not to create entirely new frameworks, but to map existing processes against the new expectations. Where do behavioural issues enter the organisation? Who owns the decision at each stage? How are borderline cases escalated and recorded? Where does judgement rely on unwritten practice rather than documented policy?
For firms with international structures, an additional layer of complexity arises. The FCA’s expectations apply to UK-regulated entities, even where group policies are set globally. This can require careful differentiation where UK standards go further, particularly in how non-financial misconduct is defined and escalated.
Getting ahead of these questions early tends to avoid more difficult remediation later. Adjustments to governance structures, decision logs and training materials are rarely complex in isolation, but they require coordination across functions that do not always operate in sync.
Boards, senior managers and the tone that follows
The practical impact of these changes is likely to be felt most acutely at senior levels. Boards and senior managers are not only responsible for oversight, but for evidencing that oversight in a way that stands up to scrutiny.
For many boards, this involves a subtle but important shift. Traditional reporting on culture has often been retrospective and qualitative. The FCA’s direction of travel points towards more structured, forward-looking monitoring. Trends in grievances, themes emerging from exit interviews, speak-up activity and engagement with training programmes begin to take on regulatory significance.
There is also a more direct accountability dimension. A Senior Manager who fails to act on known behavioural issues, or who tolerates a problematic environment, may themselves fall short of conduct expectations. The concept of “turning a blind eye” is explicitly within scope.
Clear allocation of responsibilities becomes essential. Who owns cultural oversight? How are disagreements in assessment resolved? What governance routes ensure that sensitive issues are escalated appropriately? These are not new questions, but they now carry a sharper regulatory edge.
From framework to lived practice
PS25/23 provides clarity on the FCA’s position, but its effectiveness will depend entirely on how firms operationalise it. In our experience, progress often comes through relatively focused changes rather than wholesale redesign.
Updating conduct training to include realistic interpersonal scenarios can shift understanding quickly. Aligning HR and compliance investigation processes reduces inconsistency. Introducing a centralised log for conduct-related decisions, particularly borderline cases, creates a stronger audit trail. Providing managers with practical guidance on recognising and escalating concerns builds confidence at the point issues arise.
These are incremental changes, but they collectively support a more coherent approach to non-financial misconduct. They also help ensure that decisions are fair to individuals while remaining defensible from a regulatory perspective.
Through the rest of 2026, much of the work for firms will centre on embedding these expectations into day-to-day practice. The FCA has set out its view that culture, behaviour and integrity are inseparable from financial soundness. The task for firms is to ensure that their governance frameworks reflect that reality, not only in policy documents, but in the decisions they make and record every day.
How can elemental help?
Elemental’s corporate governance team can help firms move from regulatory interpretation to practical implementation. We support boards, senior managers, HR and compliance teams with targeted gap analyses, governance framework reviews, conduct rule alignment, policy review, review of escalation processes, decision logs, training materials and board reporting.
Whether you are starting to assess the impact of PS25/23 or need support embedding changes ahead of September 2026, we can help you build a proportionate, practical and defensible approach to non-financial misconduct.
If you would like to understand where your current arrangements may need strengthening, please get in touch, we would be happy to help.