This article is by Amy Bird (Partner, Employment) and Dorian Drew (Partner, Litigation & Dispute Resolution), Clifford Chance
The Financial Conduct Authority’s (FCA) non-financial misconduct (NFM) rules come into force on 1 September 2026. These will usher in a decisive new phase in the regulation of workplace behaviour in the UK insurance sector. They should not be seen in isolation though – the overlapping timing with reforms introduced by the Employment Rights Act 2025 (“ERA 2025”) and the phase 1 revisions to the Senior Managers and Certification Regime (“SMCR”) adds to the impact of the changes.
Fixing historic cultural issues
At the core of the new NFM regime is a fundamental shift: non-financial misconduct is now explicitly brought within the scope of the FCA’s Conduct Rules. From 1 September 2026, serious instances of bullying, harassment or violence against colleagues where it relates to an individual’s role, will fall within the scope of the Conduct Rules.
This is accompanied by expanded FCA guidance on: the boundary between work and private life; how serious NFM can breach the Conduct Rules; the reasonable steps expected of managers; and the approach firms should take to fitness and propriety assessments where NFM has occurred in an individual’s private life, including the treatment of social media and unproven allegations.
NFM is an issue that has affected the entire financial services industry, but these changes are made against a backdrop of historical, but well-publicised, incidents of non-financial misconduct in the insurance industry. This prompted an FCA Dear CEO Letter in January 2020 focused on NFM in wholesale general insurance firms and reference to NFM in the FCA’s personal and commercial lines insurance portfolio letter in September 2023, amongst other initiatives. The FCA made clear its expectation that insurance firms and their senior managers should be proactive in tackling NFM, identify what drives such behaviour and, where appropriate, modify those drivers to shape proper conduct.
Personal and private life
NFM solely in a person’s private or personal life does not fall within the scope of the Conduct Rules. However, it may be relevant to the assessment of their fitness and propriety under the Fit and Proper test for Employees and Senior Personnel (FIT) guidance. The new guidance gives examples of dishonesty, lack of integrity, and violence or sexual misconduct in an individual’s private or personal life as relevant to the F&P assessment. It also provides that repeated breaches of a law may raise doubts as to whether the individual will comply with the requirements of the regulatory system. The guidance states that even where there is little risk of misconduct in private life being repeated at work, it remains relevant to F&P if it shows a willingness to disregard ethical or legal obligations, abuse a position of trust, exploit vulnerabilities, or is serious enough to undermine public confidence in the regulatory system.
The new FIT guidance confirms that firms are not generally required to monitor employees’ private lives. However, they should consider private conduct where there is a credible reason to do so — for example, an allegation which, if true, could affect the individual’s fitness and propriety.
Firms are not expected to investigate trivial, implausible or inappropriate matters that are better handled by law enforcement or other authorities. Even so, the FCA expects firms to take reasonable steps to assess potential F&P impact, such as asking the individual for an explanation.
In addition, revised guidance on regulatory references provides that where there is suspected misconduct but an individual leaves employment before an investigation is concluded, that suspicion should not automatically be excluded from any regulatory reference.
Employment law reform: raising the bar on employer liability
Running alongside the FCA’s reforms is a tightening of the employment law framework. From 30 October 2026, an enhanced duty to take “all reasonable steps” to prevent sexual harassment will apply to employers. Regulations setting out what will constitute “all reasonable steps” are expected in 2027/2028. At the end of June 2026, the Equality and Human Rights Commission (EHRC) published its Research into Workplace Harassment, the findings of which provide some guidance on how employers should audit and revise their current approach in anticipation of the enhanced statutory duty.
From October 2026, ERA 2025 reforms will make employers liable for third-party harassment of any type — not just sexual harassment — of employees in the workplace. This will create additional exposure for firms whose employees interact extensively with clients, brokers or counterparties, which is a defining feature of the insurance market.
From 1 January 2027, the compensation cap for unfair dismissal claims will be removed and employees will acquire unfair dismissal rights after six months’ service. For highly paid individuals, this will invariably increase litigation risk where misconduct allegations are mishandled. Firms will need to reconcile the FCA’s expectation of decisive action with employment law requirements for fair process and evidential rigour.
From policy to practice: what firms should do now
Firms should audit their workplace and governance processes covering NFM and harassment for consistency with the new guidance and duties. This will include annual review and certification, regulatory references, and assessing speak-up and reporting procedures. Beyond process, firms need to ensure they are embedding ownership of culture at board and senior manager level – and empowering staff through training to be able intervene in practice to prevent the type of live incidents within the sector that influenced the reforms.
Be the first to comment