Non-financial misconduct and pay

Serious bullying, harassment and violence can now breach the conduct rules in firms across the Senior Managers and Certification Regime, not only in banks. The change took effect on 1 September 2026, following the Financial Conduct Authority’s policy statement Tackling non-financial misconduct in financial services (PS25/23, December 2025). It says nothing about pay. Remuneration committees will still have to decide what follows from a finding.

The change

For banks, the amendments to the Code of Conduct sourcebook clarify the existing position. For other SMCR firms, they extend the conduct rules to serious conduct of this kind directed at colleagues, at individuals providing services to the firm or its group and their employees, and at anyone performing an activity which forms part of the firm’s activities. Conduct relating only to a business of the firm which involves no SMCR financial activities is not covered.

There are two limits. A breach still requires a lack of integrity, or of due skill, care and diligence. And the rules are concerned with conduct having a sufficient connection to the workplace, not with private life generally.

Three decisions, not one

A substantiated finding may affect pay in several ways: through fitness and propriety where that is an adjustment criterion, as misconduct under the malus and clawback regime, and through the wider risk-adjustment criteria that apply to the bonus pool and to individual awards.

Three decisions are involved, and they are distinct.

1. The misconduct finding. Did the conduct occur, and does it amount to a breach?
2. Fitness and propriety. A substantiated finding does not of itself establish that the individual fails to meet the required standards.
3. The remuneration consequence. What, if anything, follows for unvested and vested pay?

Where a dual-regulated firm concludes that a material risk taker has failed to meet the appropriate standards of fitness and propriety, its adjustment criteria must reflect that. A non-SNI investment firm under the MIFIDPRU Remuneration Code is in the same position.

Small and non-interconnected firms, and fund managers subject only to the AIFM or UCITS Remuneration Codes, have no mandatory trigger of that kind. Even so, non-financial criteria must be taken into account in assessing individual performance, and a substantiated finding will ordinarily be relevant.

Nothing in the rules requires every substantiated finding to result in a reduction or recovery of remuneration.

Why the regulator is interested

The FCA’s survey of four wholesale portfolios, published in October 2024, found that action following non-financial misconduct rarely resulted in a remuneration adjustment, and that where pay was adjusted it was mostly unvested variable pay. The September 2026 change was presented as a matter of consistency between banks and other firms. It appears also to respond to that finding.

A committee that has never adjusted pay after a substantiated finding will find that record harder to explain than any decision to adjust.

When the process fails

Odey v Financial Conduct Authority [2026] UKUT 351 (TCC) shows a different risk. The lack of integrity found by the Upper Tribunal lay principally in the individual twice removing the firm’s executive committee when it was due to hear allegations that he had breached a final written warning. The conduct pre-dated the 2026 changes.

For remuneration committees, the point is that a disciplinary process which the person under investigation can frustrate produces a governance failure before any question of pay arises.

The Tribunal also rejected the argument that conduct undertaken in the individual’s capacity as the firm’s majority owner fell outside the conduct rules. Founder-executives and owner-managers are not outside the regime merely because they act as owners.

The rules leave the remuneration consequence to the firm. A discretion that is never exercised is hard to defend as a discretion at all.