Navigating the FCA's New Conduct Rules: A Shift Toward Culture-Driven Compliance in Financial Services

The Financial Conduct Authority (FCA) has taken a bold step in reshaping the UK financial services landscape by extending its misconduct rules to encompass non-financial workplace behavior such as bullying, harassment, and discrimination. Effective September 2026, these rules will require firms to report such incidents in regulatory references, tie fitness-and-properness assessments to cultural health, and enforce stricter governance standards. This regulatory shift creates a stark divide: firms with robust diversity, equity, and inclusion (DEI) practices and strong governance structures stand to gain reputational strength and reduced compliance risks, while those with poor workplace cultures face heightened regulatory scrutiny and financial penalties.

The Regulatory Landscape: A Culture Stress Test

The FCA's new rules mark a paradigm shift. By mandating that non-financial misconduct (NFM) incidents be disclosed in employee references and linked to firms' “fitness and properness” under Threshold Conditions (COND), regulators are effectively turning workplace culture into a hard-edged compliance metric. The FCA's 2024 survey highlights the urgency: over 2,300 NFM allegations were reported across sectors between 2021–2023, with bullying/harassment (26%) and discrimination (23%) as the most prevalent issues.

The stakes are high. Firms failing to address cultural shortcomings risk losing licenses, facing fines (e.g., the £1.8 million penalty imposed on Crispin Odey), or suffering reputational damage. The FCA's focus on governance is clear: 38% of firms lack board-level oversight of NFM, and 33% lack formal committees to oversee disciplinary outcomes—a gap disproportionately affecting larger entities in sectors like London market insurance.

Winners: Firms with Proactive Compliance and DEI Integration

The regulatory changes favor companies that already embed DEI into their compliance frameworks. For instance:
1. Strong Governance Structures: Firms with board-level management of NFM (e.g., HSBC's “Culture and Conduct Committee”) are better positioned to meet the FCA's “cultural stress test.”
2. Transparent Reporting: Institutions like Legal & General, which publish detailed annual sustainability reports, demonstrate alignment with the FCA's emphasis on accountability.
3. DEI-Driven Cultures: Firms such as Aviva, which has committed to net-zero carbon emissions and gender pay gap reduction, exemplify how DEI and environmental governance reinforce each other.

Investors should prioritize firms with:
- Dynamic Regulatory References: Those updating references post-NFM incidents (87% of firms plan to do so).
- Low Underreporting Risk: Smaller firms, while reporting fewer incidents, face FCA scrutiny for potential underreporting. Larger firms with transparent processes (e.g., Standard Life Aberdeen's AI-driven misconduct detection) offer safer bets.

Losers: Firms with Poor Cultural Health

The FCA's rules pose significant risks for firms lagging in cultural reform. Sectors like wholesale banking—where 45% of NFM cases were dismissed as unsubstantiated—face questions about investigative rigor. Smaller firms (under 50 employees), which accounted for 49% of amended fitness-and-properness assessments, may struggle with compliance resources.

The regulatory uncertainty until final guidance in 2026 exacerbates risks. Firms delaying compliance preparations (e.g., those without updated whistleblowing policies or governance committees) could face abrupt penalties once rules take effect.

Investment Opportunities: Look for Cultural Resilience

Investors should favor firms demonstrating proactive compliance and cultural strength:
1. Equity Picks:
- Legal & General (LON:LGEN): Strong ESG ratings and board-level oversight of DEI.
- Aviva (LON:AV.): Transparent reporting and net-zero commitments.
2. Sector Focus: London market intermediaries, which had the highest disciplinary action rates (63%), may outperform peers if they sustain accountability cultures.
3. Avoid: Wholesale banks with high incident rates but low governance maturity (e.g., firms with 33% lacking formal disciplinary committees).

The FCA's rules are a catalyst for a marketwide reckoning. Firms that treat culture as a compliance cornerstone—not just a “soft” issue—will thrive, while laggards face erosion of trust and profitability.

Conclusion: Culture as Competitive Advantage

The FCA's new regime transforms workplace culture into a quantifiable regulatory metric. Investors must now assess firms not just on financials but on their cultural health. Companies embedding DEI into governance structures and demonstrating proactive compliance will gain a sustainable edge in an increasingly values-driven marketplace. Those failing to adapt will find themselves on the wrong side of both regulators and investors.

The era of treating culture as an afterthought is over. The winners are already preparing for 2026—and so should investors.