The FCA's New Rules: How Non-Financial Misconduct Regulations Redefine Risk in Financial Services

The UK Financial Conduct Authority (FCA) is reshaping the financial services landscape with its expanded non-financial misconduct (NFM) regulations, which now impose accountability on firms for workplace culture failures. This policy shift, effective September 2026, marks a seismic shift in how investors must assess risk in the sector. For investors, the implications are clear: firms that prioritize robust anti-bullying/discrimination frameworks and leverage the FCA's regulatory references mechanism will outperform peers, while laggards face reputational and operational pitfalls.

The Regulatory Overhaul: Key Implications for Firms

The FCA's reforms, delayed until June 2025, now extend conduct rules to non-bank financial institutions, mandating firms to treat bullying, harassment, and discrimination as regulatory offenses. The regulatory references mechanism (SYSC 22) now requires firms to disclose NFM incidents in employee references, linking misconduct to an individual's “fitness and properness” (FIT) for regulated roles. This creates a system of accountability where poor workplace culture is no longer a “soft” issue but a compliance liability.

The stakes are high: the FCA has already imposed a £1.8 million fine and lifetime ban on hedge fund manager Crispin Odey for obstructing an internal harassment investigation. Such penalties signal that enforcement is no longer theoretical.

Employment Risk: A New Metric for Due Diligence

Investors must now treat NFM as a critical risk factor. The FCA's 2023 survey revealed a 72% rise in reported NFM incidents since 2021, with bullying/harassment and discrimination topping the list. Firms with underreported NFM cases—often due to poor reporting cultures—face operational risks, including talent attrition and regulatory penalties.

The regulatory references mechanism provides a tool to mitigate these risks. Investors can cross-check candidate histories via these references to identify firms that tolerate misconduct. For example, a firm with a pattern of failing to disclose serious NFM in references may signal governance failures, raising red flags about its overall risk management.

Corporate Governance: Culture as a Regulatory Threshold

The FCA has explicitly tied workplace culture to firms' fitness for authorization under its Threshold Conditions (COND). A firm's ability to address NFM now determines its license to operate. This creates a “cultural stress test” for investors: firms with weak governance—such as 38% lacking board-level NFM oversight—are vulnerable to fines, operational disruption, and reputational damage.

Investors should prioritize firms with:
- Proactive surveillance: AI-driven tools to monitor communications for misconduct.
- Transparent reporting: Clear policies for handling NFM, including updating references post-employment.
- Diversity, equity, and inclusion (DEI) integration: While mandatory D&I targets were delayed, firms that align DEI with NFM prevention (e.g., reducing discrimination risks) will build resilient cultures.

Long-Term Investment Stability: The Case for Compliance Leaders

The FCA's reforms create a two-tier market: firms that invest in robust frameworks and those that do not. Compliance leaders will attract talent, avoid penalties, and maintain investor confidence. Laggards risk becoming pariahs, with stock volatility and downgraded credit ratings.

Consider the data: firms with strong ESG (Environmental, Social, Governance) ratings outperformed peers by 18% annually between 2020–2023, according to MSCI. While ESG metrics often focus on environmental factors, the FCA's NFM rules now embed social governance into compliance requirements.

Strategic Imperatives for Investors

1. Use Regulatory References as a Litmus Test: Scrutinize firms' reference practices. Those that underreport NFM or lack consistent disciplinary outcomes may pose hidden risks.
2. Prioritize Firms with Proactive Governance: Look for firms with board-level NFM oversight and systems to update references dynamically.
3. Avoid Lagging Institutions: Steer clear of firms with frequent NFM-related fines or delayed compliance.

Conclusion

The FCA's expansion of NFM regulations transforms workplace culture from a “soft” issue into a hard-edged compliance requirement. Investors must treat anti-bullying/discrimination frameworks as core to firm value. Those that leverage the regulatory references mechanism to identify governance leaders will capture outperformance, while underestimating these risks invites unnecessary volatility.

In the era of FCA 2025, culture is compliance—and compliance is profitability.