Further delay to non-financial misconduct final rules: what should UK firms do in the meantime?

Plans to impose stricter diversity and inclusion (D&I) rules for financial firms have been axed by the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA), with new rules and guidance on non-financial misconduct (NFM) delayed to the summer this year.

A relatively recent addition to the regulatory architecture, NFM is used as a catch-all term – referring to employees' conduct in relation to issues such as bullying, harassment of any kind, and discrimination.

Plans to disclose D&I policies scrapped

The FCA and PRA have announced that new rules on D&I will not be published and as such, plans to require firms to disclose further data on D&I will not be progressed.

The regulators told MPs that they sought to avoid increased regulatory burden on firms, as well as any potential legislative overlap with government proposals in the same space. 

Robust measures needed on NFM

In October 2024, the FCA published findings from its survey of culture and non-financial misconduct that was sent to 1,028 regulated wholesale financial services firms. This revealed that there had been 2,347 allegations of NFM reported in 2023 – around nine incidents per day. Following publication of the findings, the FCA expected firms to reflect on the data and consider what actions were needed in order to make improvements.   

Such regulatory focus also aligned with recent legislative changes under the Worker Protection (Amendment of Equality Act 2010) Act, effective October 2024, which requires employers to “take reasonable steps to prevent sexual harassment of employees during their employment”.

'Healthy culture for healthy growth'

In a speech delivered to the 10th Annual Culture and Conduct in Financial Services Summit last month, the FCA's chief operating officer, Emily Shepperd, indicated that, while the sector has a key role to play in the UK's economic growth, unhealthy cultures could impact this: "turning a blind eye to toxic behaviours not only drives away good staff, but has to raise serious questions about a firm’s wider decision-making and risk management."

A culture in which inappropriate behaviour can be called out and challenged – a "speak-up culture" – is seen as crucial by the FCA to safeguard both consumers and financial markets.  

A change in approach

Only one month later, however, with the FCA's volte-face on D&I, NFM rules are no longer imminent. The FCA chief executive Nikhil Rathi stated that although the regulator will "continue to prioritise" its work on NFM, it would take more time to "get this right" in a changed legislative landscape.

Next steps on NFM will be set out by the FCA by the end of June.

Osborne Clarke comment

With the repeated push back on publishing final rules by the FCA and PRA, the regulators' announcement on D&I does not come as a surprise. Whether this is the beginning of the end for D&I focus in the industry though remains to be seen.

It remains prudent for regulated firms, while they await the final measures on NFM, to proactively review and assess culture and NFM issues within their organisations by:

• identifying problem areas and implementing remediation measures to reduce NFM-related incidents;
• conducting culture assessments and internal investigations following any reports of NFM, to determine if there are systemic issues; and
• ensuring policies are appropriate, including whistleblowing procedures and providing relevant training to employees.

Organisations should also consider their obligations under the Worker Protection (Amendment of Equality Act 2010) Act.