FCA Widens Misconduct Reference Rules to 37,000 Firms

The UK’s Financial Conduct Authority (FCA) has extended its regulatory reference requirements to cover non-financial misconduct, such as bullying, harassment, and discrimination. The rules, which took effect September 1, now apply to approximately 37,000 non-bank firms, including newly authorized crypto-asset companies. This expansion is expected to spur a significant increase in disputes between firms and their former employees, as allegations of non-financial misconduct are often more subjective and fact-sensitive than financial infractions.

Sophisticated counsel should note the heightened operational and legal risks. Experts caution that many firms struggle to integrate their human resources, legal, and compliance functions when handling these disclosures. Companies may lack clear triggers for distinguishing routine performance management from formal FCA conduct investigations, leading to inconsistent reporting and potential employment claims. Firms must balance their regulatory disclosure obligations with their duty of care to employees, particularly when deciding whether to include allegations from an incomplete investigation. In-house and external counsel should review and potentially redesign their internal reporting and reference-drafting protocols to mitigate regulatory and litigation exposure.