Financial services firms face a perfect HR storm
Sarah Jackman warns of a major shift in management of behaviour and culture
With new rules coming into force on 1 September 2026, addressing non-financial misconduct (NFM) is no longer a developing theme for the Financial Conduct Authority (FCA), but rather a fixed regulatory expectation of financial services firms.
At the same time, HR and employment law teams across all sectors are facing a wave of change relating to conduct at work under the Employment Rights Act.
Blowing the whistle on sexual harassment is now automatically recognised as a protected disclosure, and from October 2026, the duty to prevent sexual harassment will increase to a requirement to take all reasonable steps to stop such behaviour, alongside the reintroduced obligation on employers not to permit harassment of employees by third parties.
Further changes will follow in 2027, including new limits on the use of non-disclosure agreements (NDAs) in cases of workplace harassment or discrimination.
From 1 January 2027, the qualifying period for ordinary unfair dismissal protection reduces from two years to six months, and compensation for being unfairly dismissed will be uncapped.
The potential for unlimited compensation is particularly significant in cases involving allegations of NFM, where individuals may argue that dismissal – or the impact of regulatory disclosures on a reference – has caused long-term or career-ending loss.
Individually, each of these developments is significant. Taken together, they represent a fundamental shift in how financial services firms are expected to manage workplace behaviour and culture.
The result is that these decisions are becoming harder to make, and more expensive to get wrong.
NFM is not intended to capture all forms of workplace misconduct that could be described as "non-financial".
Under the FCA's new Code of Conduct (COCON) rule coming into force on 1 September 2026, NFM covers serious misconduct amounting to bullying, harassment and violence.
Harassment, for these purposes, is not limited to conduct related to Equality Act protected characteristics, and yet the definition does not extend to all forms of discrimination or victimisation defined under the Equality Act.
So while harassment is broader in one sense, the overall scope of NFM is narrower than many firms have been applying in practice, requiring businesses to consider distinguishing clearly between regulatory NFM and broader misconduct, and address both effectively.
Firms must operate overlapping frameworks across HR, Legal and Compliance and ensure alignment in tackling workplace misconduct. Without a joined-up approach, there is a risk of inconsistent outcomes, duplication of processes, and misalignment in how issues are escalated and resolved.
Most firms are used to identifying unacceptable behaviour, but the greater challenge now is how that behaviour is classified, recorded and escalated.
Historically, many firms have used “non-financial misconduct” as an umbrella category for behavioural issues, but the FCA’s updated position gives firms cause to consider more disciplined use of that label.
For HR teams, the impact is most acute in the handling of individual cases. When issues arise, firms must investigate and determine appropriate disciplinary outcomes.
Even where behaviour does not meet the threshold for NFM, it may still constitute a Conduct Rules breach or raise serious employment law issues.
Internal processes therefore need to produce outcomes that are robust, well-documented and capable of withstanding scrutiny.
Against this backdrop of increasing complexity and risk, firms should be taking concrete steps now to ensure their frameworks, processes and governance are fit for purpose.
Sarah Jackman is an employment law counsel in Dentons’ Glasgow office.