The new rules do not mark a fundamental change. The FCA says UK banks were already subject to similar requirements, and, in practice, many asset managers have already applied broadly comparable standards. However, there are new points of emphasis and clarifications which firms will need to consider, possibly with significant consequences.
Firms will welcome the FCA's attempt to clarify the line between an individual's private life and behaviour related to their role in a regulated firm. The FCA has made clear that purely private conduct will not be subject to its Conduct Rules. But it is not quite that simple: misconduct in a person's private life may still be relevant to a firm's broader assessment of whether the individual is fit and proper to work in the financial services industry.
Helpfully, the FCA has confirmed that firms are not expected to engage in intrusive monitoring of their employees' private lives. But when relevant matters are brought to their attention, they will need to take reasonable steps to investigate. This will require careful judgement – both in deciding when to investigate, and what conclusions about a person's honesty and integrity should be drawn from any findings.
But, although not a fundamental change, the FCA is raising expectations. Serious bullying and harassment are now likely to be a breach of the duty to act with integrity. In addition to triggering internal disciplinary procedures, egregious cases could lead to FCA enforcement action against the individual. Firms will no longer be able to dismiss degrading, intimidating or humiliating conduct as the rough and tumble of business life; the FCA is clearly hoping to drive culture change.
Perhaps more importantly, managers must also take reasonable steps to prevent bullying and harassment within their areas of responsibility. If they fail to act, they may be liable under the Conduct Rules for failing to exercise due care and skill.
This approach aligns with employers’ general duty to prevent sexual harassment, introduced in the UK in October 2024. Implementation has varied, but this duty will now also extend to harassment by third parties from October this year. Firms that missed the 2024 rules can use the FCA’s new rules to address these obligations as well.
Individuals in management roles will note that turning a blind eye to poor behaviour in their teams will expose themselves and their firms to litigation and enforcement risk. They must identify and address misconduct when it occurs. However, they may take some comfort from the FCA's pragmatic guidance that, when determining personal responsibility, factors such as the individual's scope of authority, and the umbrella responsibility of the firm's HR function, should also be considered.
Inevitably, grey areas remain. Where is the line between robust management and bullying or harassment? Is an impromptu after-party following a work social event professional or personal? What can a line manager reasonably be expected to know and do about bullying or harassment in their team? The regulator cannot provide guidance for every scenario. The firm will have to implement processes to make these decisions on a case-by-case basis.
What is clear is that from 1 September, non-financial misconduct will be high on the regulator's supervisory agenda, and some firms will need to change their practices and cultures. The FCA hopes these reforms can begin to shift the conversation from 'Sexism in the City' to 'Accountability in the Office'. That would be a very positive step forward.
