July 2025

      The headlines

      Serious non-financial misconduct (NFM) such as bullying, harassment and violence is a matter of regulatory concern, not just for banks, but for all regulated financial services firms and their staff — so says the FCA.

      With the long awaited release of a policy statement and a further consultation on “tackling non-financial misconduct in financial services”, the FCA has re-emphasised its expectation of financial services firms to foster healthy and inclusive workplace cultures that empower staff to speak up and raise concerns.

      Tackling NFM is hard. It requires tough judgment calls in often distressed and emotive situations, complicated by intersecting obligations under employment law, regulatory standards, risk and compliance requirements, mental health, wellbeing and workplace safety, management and performance standards and employee relations, typically in very fact-specific circumstances. 

      The FCA is understandably keen to ensure firms can interpret and apply its conduct rules and fitness and propriety requirements relating to NFM easily and consistently. To this end, the FCA is also consulting on additional, detailed draft Handbook guidance including whether it is needed and, if so, in what form. 

      The FCA is laudably trying to give financial services firms the clarity, confidence, and ability to tackle toxic behaviours as a fundamental regulatory issue.

      Building on some earlier proposals but walking back others

      In March 2025, the FCA confirmed that it would not take forward its diversity and inclusion (D&I) proposals due to overlap with upcoming government legislation. But 80 percent of the 173 respondents to the D&I consultation supported broadly the FCA proposals on NFM specifically, and so this latest publication takes them forward. 

      However, some parts have been dropped:

      • Explicit guidance on the relevance of NFM and widely defined “discriminatory practices” to the FCA’s assessment of a firm’s suitability to undertake regulated activities in the FCA’s Threshold Conditions.
      • Guidance reminding firms that they may need to disclose NFM at work or in private life in an employee’s regulatory reference. The FCA is content that the existing rules and guidance on regulatory references is sufficient. 

      Expressly defining NFM in the Code of Conduct and confirming its application beyond banks

      The Code of Conduct (COCON) is technical and, as currently drafted, can be difficult to decipher regarding the applicability of NFM in a regulatory context beyond banks. The FCA is changing COCON to expressly confirm that the NFM rules apply to non-banks in the same way that they will apply to banks. The new rules will apply from 1 September 2026 and the FCA may consult on further guidance. The changes will not apply retrospectively.

      No doubt many financial services firms currently tackle allegations of bullying and harassment and incidents of workplace violence through their HR policies and procedures. But banks and non-banks will now need to include NFM examples in their staff training on COCON and check that monitoring of conduct rule breaches and regulatory reporting to the FCA captures NFM.

      The need for further guidance in COCON and FIT about NFM?

      Concerns were raised across the financial services sector in response to the 2023 proposals that the original Handbook guidance on NFM was not closely enough aligned to employment law and used undefined terms and descriptions of conduct which could lead to difficulties in interpreting the intention of the FCA and inconsistent application and decisions by firms across the sector.

      The new proposals are much more closely aligned with employment law concepts and tests including the subjective and objective factors in assessing NFM and are more specific about what the threshold question of “serious” NFM is intended to mean.

      Accordingly, proposed COCON amendments in the Handbook include:

      • A whole new section on the scope of COCON, giving examples and guidance on the boundary between work and private life.
      • Factors to consider when determining whether NFM breaches the conduct rules, including whether:
        • The misconduct was ‘serious’
        • It was reasonable for it to have the perceived effect
        • Related to Individual Conduct Rule 1 (Integrity) or Rule 2 (Due skill & diligence)
      • Examples of reasonable steps for managers to protect staff against NFM.

      Proposed amendments to Handbook provisions around FIT (Fit and Proper test for Employees and Senior Personnel) provide explanatory material on how various types of conduct, including NFM, are relevant to FIT assessments. These cover:

      • Regulatory breaches
      • Conduct connected to work
      • Behaviour in private or personal life
      • Social media and employee monitoring
      • Relevance to competence and capability

      If introduced, the new guidance would also come into effect on 1 September 2026.

      How can KPMG in the UK help?

      There is a lot of material in the proposals and draft Handbook text for firms to understand and integrate into their workplace management systems over the next 12 months or so.

      We approach this issue from an interdisciplinary perspective, combining the best of employment law, risk, regulatory, reward and people advisory services. 

      We are already helping clients in several ways in light of these proposals and the FCA’s direction of travel in respect of NFM over the last few years, such as:

      • Reviewing and refining how NFM is understood and defined internally. Does it match the FCA’s expectations?
      • Mapping approaches to how NFM is dealt with. Is it consistent with the new rules and draft guidance and what needs to change?
      • What data and trends can you draw from issues of NFM raised currently and where these arise across the business. Can you track NFM data across your systems.
      • Who “owns” NFM – HR, Risk, Legal, Compliance or a combination? Who should own it now it sits at the heart of the FCA’s regulatory culture agenda.
      • Devising and implementing education and training programmes for stakeholders (line managers, business unit heads, senior managers, board members).
      • Developing consultation, communication, and training programmes to be rolled out across the workforce. Are existing programs fit for purpose?
      • Reviewing remuneration policies, structures, and processes (including underlying variable pay plans and scheme rules) to determine whether they align with the regulatory expectations on NFM. Do they need amending?
      • Wider culture reviews and audits to analyse how effectively your policy and procedure architecture is operating in respect of disciplinary, grievances, whistleblowing, speaking up, consequence management frameworks, supervisory standards, and the tone “from the top” right through the workforce. 

      Please get in touch if you would like to discuss with any member of our team.

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      Our people

      Kate Dawson

      Wholesale Conduct & Capital Markets, EMA FS Regulatory Insight Centre

      KPMG in the UK

      David Cummings

      Partner, KPMG Law

      KPMG in the UK

      Mr Tim Payne

      Partner, People Consulting, Financial Services

      KPMG in the UK