From 1 September 2026, the FCA expects firms to do more than update their policies. They must be able to demonstrate that their governance arrangements can identify, assess and appropriately respond to serious non-financial misconduct.

For regulated firms, the implementation date brings practical tasks into view: policies to review, wording to update and training materials to refresh. While this work is necessary, it should not become a substitute for the more challenging exercise of testing how the firm would actually respond when serious workplace misconduct arises. The real test is not whether a firm has updated its policies, but whether its governance framework enables the right people to make consistent, well-reasoned and defensible decisions when it matters most.

Here Pregeshni Maduramuthu, head of managed services at Arbor Law shares her insights and advice for those who will be affected by this year’s changes.

Working with FCA-regulated firms on governance arrangements, I have found that the firms most exposed under this kind of regulatory change are not those that lack a policy – they are the ones that have not built the working relationships and documented processes to put that policy into practice when it matters. September is the moment to address both.

In practice, the rules require firms to look beyond whether a matter sits neatly within HR, and to consider whether the conduct in question may also have regulatory implications. That does not turn every workplace issue into a regulatory event. It does, however, require a clearer and more consistent process for recognising when misconduct may call into question an individual’s integrity, fitness and propriety.

Non-financial misconduct is now part of the regulatory conversation

Allegations of bullying, harassment, discrimination or violence have traditionally been handled through HR processes. That will still be the starting point for most cases. The FCA’s rules do not mean that every workplace disagreement becomes a regulatory matter, or that firms should over-escalate minor concerns with no bearing on an individual’s regulated role.

Where conduct is serious, work-related and relevant to an individual’s honesty, integrity, reputation or fitness to perform a regulated function, firms will need to consider whether the matter has consequences beyond the immediate employment process – including implications for Fitness and Propriety assessments, regulatory references andConduct Rules reporting or the responsibilities of Senior Managers.

This is where judgement becomes critical. Firms will need clear internal frameworks that identify which matters should be escalated, who should be involved and how decisions should be documented. Without that structure, there is a real risk that similar cases are handled inconsistently, or that regulatory considerations are addressed too late in the process.

The challenge is rarely policy alone

Most firms will be able to update policies before the deadline. The harder task is ensuring that the updated policy works in practice – particularly when a sensitive allegation involves someone who is senior, high-performing or commercially important. In those moments, governance is tested less by the existence of a policy than by the firm’s ability to bring the right people into the discussion at the right time.

HR will continue to play a central role, but these matters can no longer be viewed exclusively through an employment lens. Compliance, Senior Managers and, in some cases, the Board may need to be involved in assessing the wider regulatory significance of conduct. The practical question is how the firm identifies those cases, and how it records the reasoning behind the decision – to escalate or not to escalate.

Governance will be the differentiator

One notable feature of the FCA’s approach is that firms are not being asked to reopen historic investigations or revisit previous decisions. The focus is on governance going forward. From implementation, firms will need to be able to explain how decisions were reached and why particular outcomes were considered appropriate – and that explanation may need to withstand scrutiny from several directions: the individual concerned, internal committees, future employers and the regulator itself.

Importantly, the FCA is not encouraging firms to create unnecessary bureaucracy or adopt a risk-averse approach to every workplace issue. The expectation is one of proportionate governance: having clear escalation processes, involving the right stakeholders at the right time, and ensuring key decisions are well-reasoned and appropriately documented.

Firms should not create defensive paperwork for its own sake. The purpose of the record is to show the factors considered, the people involved, the regulatory questions asked and the reasons why a matter was or was not escalated. In sensitive cases, the absence of a clear record can become a problem in itself. Ultimately, firms that can demonstrate sound judgement and effective decision-making will be better placed than those that simply produce more policies or paperwork.

What firms should be doing now about the  FCAs non-financial misconduct rules

Beyond a narrow policy review, firms should assess whether HR and Compliance are aligned on escalation criteria; whether Fitness and Propriety assessments properly reflect serious non-financial misconduct; whether Senior Managers understand when they may need to be involved; and whether the firm could demonstrate to the FCA how and why a particular decision was reached. 

Training will be important, but it will not resolve uncertainty unless it is supported by clear internal ownership and a practical escalation framework. Firms should also take the opportunity to test their governance arrangements in practice, ensuring that those responsible for managing these issues understand their respective roles and can work together effectively when difficult decisions arise. 

The key test is not whether policies mention non-financial misconduct, but whether the organisation would know what to do when a difficult case actually arises.

An opportunity to strengthen culture

The firms that will navigate this period most credibly are those that have always taken culture seriously: that have invested in speak-up mechanisms, built real accountability at senior levels, and treat their people with the same rigour they apply to governance. The FCA’s position makes clear that culture sits firmly within the regulatory framework, particularly where misconduct calls into question an individual’s integrity, fitness or propriety.

For firms, the task now is to translate that expectation into practical arrangements – proportionate, consistent and capable of being explained, without becoming an end in themselves. Ultimately, the firms that respond most successfully will not be those with the longest policies or the most detailed procedures. They will be the firms that can demonstrate sound judgement, proportionate governance and a culture in which difficult decisions are made consistently, fairly and transparently. In my view, that is exactly what the FCA is seeking to achieve.

How Arbor Law can help

Arbor Law works with FCA-regulated firms to translate regulatory change into practical governance. Our focus is on helping firms implement proportionate frameworks that meet regulatory expectations, support sound decision-making and strengthen organisational culture.

For firms preparing for the new non-financial misconduct rules, that may include reviewing how Fitness and Propriety assessments address serious workplace misconduct, helping HR and Compliance teams agree clear escalation routes, advising Senior Managers on their responsibilities, and supporting firms where employment law and regulatory considerations overlap.

The aim is to help firms put proportionate governance arrangements in place before issues arise, enabling difficult decisions to be made carefully, consistently and with a clear record of the reasoning behind them.

Get in touch here. 

FAQs

Do the FCA’s non-financial misconduct rules apply to every workplace HR issue?

No. The rules are not intended to make every workplace disagreement into a regulatory matter, and firms should not over-escalate minor concerns with no bearing on an individual’s regulated role.

Where conduct is serious, work-related and relevant to an individual’s honesty, integrity, reputation or fitness to perform a regulated function, firms will need to consider whether the matter has consequences beyond the immediate employment process – including implications for Fitness and Propriety assessments, regulatory references or Conduct Rules reporting. The key is having a clear internal framework for identifying when that threshold is crossed.

Do FCA-regulated firms need to update their Fitness and Propriety assessments for non-financial misconduct?

Probably yes, at least to review their scope. Many existing F&P frameworks were designed primarily around financial competence and technical capability. The FCA’s updated approach requires that they adequately reflect serious non-financial misconduct. 

If your current framework would not identify a pattern of serious workplace behaviour as a fitness concern, it is worth revisiting before September.

Will firms be required to reopen historic misconduct cases under the FCA’s new rules?

No. The FCA has been explicit that it is not asking firms to revisit previous decisions or reopen historic investigations. The focus is on governance going forward: firms need to demonstrate that they have robust arrangements in place to make consistent, well-reasoned and well-documented decisions from the implementation date onwards.

How should HR and Compliance work together under the FCA’s non-financial misconduct framework?

The two functions need a shared understanding of when a matter moves beyond a purely employment issue into regulatory territory, and a clear escalation process for when it does. In practice, this means agreed criteria for escalation, consistent documentation standards across both functions, and a defined point at which Senior Managers become involved in complex or sensitive matters. 

Firms that have not previously formalised this relationship may find it is the most practical change they need to make ahead of September.

What do FCA-regulated firms need to do before the non-financial misconduct rules come into force on 1 September 2026?

Beyond policy updates, firms should assess whether HR and Compliance are aligned on escalation criteria; whether Fitness and Propriety assessments adequately cover non-financial misconduct; whether Senior Managers understand their responsibilities; and whether record-keeping arrangements are robust enough to explain, clearly and credibly, how conduct decisions were reached. 

Training will help, but it will not resolve uncertainty on its own – firms need clear internal ownership and a practical escalation framework in place before the deadline.

How can Arbor Law support firms with implementation?

Arbor Law advises FCA-regulated firms on the practical implementation of regulatory change. This includes reviewing Fitness and Propriety frameworks, updating policies, delivering training for Senior Managers and advising on complex conduct matters where employment and regulatory considerations overlap.