The FCA has made it clear: your spreadsheets can be perfect and your financial returns spotless, but that won't protect you if your firm's culture is rotten.
With enforcement actions up 24% in recent reporting periods, the regulator has shifted its supervisory focus aggressively toward internal culture, SM&CR adherence, and what it calls 'non-financial misconduct.' For independent financial advisers, this represents a meaningful change in how the FCA assesses fitness and propriety—and it's one you need to understand now.
What counts as non-financial misconduct?
Non-financial misconduct covers behaviour that doesn't directly involve money or client assets but still reflects on a person's integrity and fitness to work in financial services. The FCA's definition is deliberately broad, but specific examples include:
- Bullying and harassment in the workplace
- Discrimination based on protected characteristics
- Sexual misconduct
- Dishonesty outside work (including criminal convictions)
- Failure to disclose relevant information about conduct
The regulator's position is straightforward: someone who behaves badly in one context is more likely to behave badly in another. A senior manager who bullies junior staff may also cut corners on compliance when it suits them.
Why the FCA cares about your office culture
This isn't the FCA going soft or getting distracted by HR issues. The regulator has drawn a direct line between workplace culture and consumer outcomes.
Their reasoning goes like this: firms where staff feel unable to speak up about misconduct are the same firms where compliance failures go unreported. Toxic cultures breed cover-ups. And cover-ups eventually lead to consumer harm.
The FCA has been explicit that it expects firms to:
- Have clear policies on non-financial misconduct
- Actually enforce those policies when breaches occur
- Consider non-financial misconduct when assessing fitness and propriety
- Report relevant matters through the usual regulatory channels
For smaller IFA firms, this might feel like regulatory overreach. But the FCA has made clear that size doesn't exempt you from these expectations.
SM&CR is the enforcement mechanism
The Senior Managers and Certification Regime gives the FCA the tools it needs to act on non-financial misconduct. Here's how it works in practice:
For Senior Managers: The FCA can and will consider non-financial misconduct when assessing whether someone is fit and proper to hold a senior management function. A conviction for assault, evidence of workplace bullying, or dishonesty in personal matters can all be grounds for refusing or withdrawing approval.
For Certified Persons: Firms must assess fitness and propriety annually. That assessment should now explicitly include consideration of non-financial misconduct. If you're signing off that someone is fit and proper without considering their conduct outside purely financial matters, you're not meeting the FCA's expectations.
For Conduct Rules Staff: The individual conduct rules—particularly the requirement to act with integrity—apply to behaviour that might previously have been dismissed as 'not a compliance matter.'
What this means for your firm
If you're running a small IFA practice, here's what you should be doing:
Review your policies. Do you have a written policy on bullying, harassment, and discrimination? Does it explain how complaints are handled and what the consequences are? If not, write one.
Update your fitness and propriety assessments. Your annual certification process should include specific questions about conduct. Don't just ask 'have you been convicted of any offences?' Ask about disciplinary actions, complaints, and regulatory investigations—even those unrelated to financial services.
Document everything. If you become aware of misconduct and decide to take no action, record why. The FCA will want to see your reasoning if they come knocking.
Train your staff. Everyone subject to the conduct rules should understand that integrity means integrity everywhere, not just when dealing with clients.
The practical risk for IFAs
The most likely way this affects a typical IFA firm is through the certification process. Imagine you employ an adviser who's excellent with clients but has a formal complaint against them for bullying a junior administrator. Can you certify them as fit and proper?
The FCA's answer is: it depends, but you need to consider it properly. Simply ignoring the complaint because it's 'not a client matter' won't cut it anymore.
Similarly, if you're bringing in a new senior manager and your due diligence reveals they left their previous firm under a cloud—even if no regulatory action was taken—you need to investigate and document your findings.
The bottom line
The FCA's focus on non-financial misconduct isn't a temporary initiative. It's a permanent expansion of what the regulator considers relevant to fitness and propriety. For IFAs, this means treating workplace culture as a compliance issue, not just an HR one.
The firms that adapt will find this straightforward—most already behave decently and just need to document their approach. The firms that don't may find themselves explaining to the FCA why they certified someone as fit and proper despite knowing about serious misconduct.
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