Non-financial misconduct: Regulatory change meets rising litigation risk

The FCA's new non-financial misconduct (NFM) rules, effective from 1 September 2026, represent a significant expansion of the regulatory focus on workplace culture across UK financial services. Serious bullying, harassment and violence will fall within the Conduct Rules for a much wider population of regulated firms, while firms will also be expected to consider certain forms of misconduct when assessing an individual's fitness and propriety¹. 

However, the regulatory change is only one element of the risk landscape. Financial institutions are facing a backdrop of rapidly increasing employment litigation, whistleblowing activity and discrimination claims, all of which have the potential to create substantial legal, regulatory and reputational exposures.

Recent Ministry of Justice statistics show a sharp increase in Employment Tribunal activity. Single Employment Tribunal claims increased by 54% year-on-year during the final quarter of 2025², while the number of live cases rose by 49%, highlighting both growing claimant activity and increasing pressure on the tribunal system³.

There is also evidence that workplace harassment claims are increasing. Analysis found a 7% rise in sexual harassment-related Employment Tribunal decisions during 2024, a trend attributed to greater employee awareness, the impact of the #MeToo movement and intensified scrutiny of workplace culture⁴.

For financial institutions, these trends are particularly relevant given the FCA's view that poor workplace behaviour can be a leading indicator of broader cultural and governance failings. The regulator has explicitly linked bullying and harassment to concerns regarding decision-making, risk management and market integrity.

The legal environment is becoming more challenging. The Employment Rights Act reforms introduce enhanced protections for employees and strengthen employers' obligations regarding workplace harassment. Fox Williams notes that reports of sexual harassment are now treated as protected disclosures for whistleblowing purposes, while further reforms are expected to increase employers' obligations to prevent harassment and may encourage more employees to pursue claims⁵.

From an insurance perspective, allegations of non-financial misconduct can trigger a range of exposures, including:
•    Employment Practices Liability (EPL) claims.
•    Directors' & Officers' (D&O) investigations and defence costs.
•    Regulatory investigations involving the FCA and PRA.
•    Whistleblowing and retaliation claims.
•    Reputational damage and associated crisis management costs.

Senior managers may also face increased scrutiny regarding the steps they have taken to prevent, identify and respond to misconduct within their business areas. The FCA has made clear that managers are expected to take reasonable steps to address NFM and failures may themselves constitute regulatory breaches.

The combination of heightened regulatory expectations and rising employment litigation means that non-financial misconduct should no longer be viewed solely as an HR matter. It is increasingly a material enterprise risk with implications for governance, regulatory compliance, executive accountability and insurance programmes. Firms that invest now in culture, training, investigation procedures, whistleblowing frameworks and appropriate insurance protection will be better positioned to manage what is rapidly becoming one of the most significant people-related risks facing the sector.

References:
1.    [fca.org.uk]
2.    [brodies.com]
3.    [downslaw.co.uk]
4.    [personneltoday.com]
5.    [foxwilliams.com]