Fewer Than 7% of Firms Prepared for FCA's New Misconduct Regulation

Previously, only specific misconduct linked to a firm’s regulated activities fell under FCA rules. The new regulation widens the scope, making serious bullying, harassment, and violence towards colleagues regulatory matters, regardless of their relation to a firm’s regulated business. This change affects asset managers, brokers, insurers, and consumer credit firms similar to the obligations already in place for banks.

The FCA clarified that breaches of the new rule will not be treated retrospectively, meaning firms are not required to revisit past decisions related to conduct rule violations. Any misconduct before the rule’s implementation can still be assessed under separate fitness and propriety tests. From this point onward, firms must effectively identify, investigate, and report misconduct with the same diligence reserved for market abuse or mis-selling cases.

To date, no enforcement actions or guidance specifically regarding the recent rule have been reported, which is not unexpected as investigations often take years before public outcomes are announced.

COCON 1.1.7FR stipulates that misconduct does not need to be connected to regulated activities. It encompasses serious bullying, harassment (including sexual harassment), and violence during work-related events. While discrimination is considered under this rule only if it manifests as bullying or harassment, firms must still evaluate whether actions breach conduct rules in other respects.

Firms must assess incidents based on three tests: seriousness of the conduct, whether it was reasonable that the conduct had the described effect, and which conduct rule was engaged. The definition of seriousness is context-dependent and includes factors such as repetition, duration, impact, and the level of the perpetrator.

There is a significant gap in readiness among firms, with a survey revealing that 77% of respondents thought the new rules would have limited impact on their operations, despite less than 7% having experience managing staff misconduct. Additionally, 84% of attendees from a related webinar indicated they would need external assistance to prepare their processes.

A survey conducted by the FCA with 984 firms already subject to conduct rules showed a troubling lack of infrastructure: 38% of firms did not provide their boards with any management information on non-financial misconduct, while 33% lacked formal governance structures for handling outcomes and disciplinary actions. Furthermore, many firms did not have a current whistleblowing policy in place. This suggests a potentially greater operational deficit among the 37,000 new firms captured by the rule.

In a related ruling on September 14, 2026, the Upper Tribunal upheld an FCA ban on hedge fund manager Crispin Odey for previous misconduct, reflecting the regulatory seriousness concerning personal conduct, despite occurring under older regulations.

The FCA intends to focus on firms’ compliance with the new rules rather than immediate enforcement. They have clarified that no retrospective review of past conduct findings or monitoring of employees' private lives is necessary unless there is a significant regulatory concern.

In the current implementation phase, firms are prioritizing staff communication, training, and establishing protocols involving human resources, legal, and compliance. Emphasis is also being placed on ensuring regulatory references adequately capture serious misconduct findings, closing a gap previously permitting individuals with serious issues to move between firms undetected.

Looking ahead, as enforcement actions citing COCON 1.1.7FR are unlikely in the short term, attention will turn to the FCA's Annual Public Meeting on October 6, 2026, for insights into the new regulation’s implementation.