FCA Manager Accountability Rules: Finance Firms Prepare for 2026 Expansion

The Financial Conduct Authority's Senior Managers Regime (SMR) is about to undergo its most significant expansion since its introduction following the 2008 financial crisis. From 1 September 2026, accountability requirements will extend from the current 18,000 regulated individuals across major banking and investment firms to approximately 37,000 managers across the entire financial services sector—including wealth managers, insurance brokers, and smaller fund administrators operating across the UK.

This regulatory shift arrives at a critical moment. The FCA has explicitly broadened its misconduct definition to encompass workplace bullying and harassment, moving beyond traditional financial misconduct. For finance professionals and HR leaders, this represents a fundamental recalibration of risk management, governance structures, and cultural accountability.

The FCA's Expanded Misconduct Definition: What's Changing

Until now, the FCA's misconduct framework focused narrowly on breaches of conduct rules directly linked to financial stability, market integrity, and consumer protection. The September 2026 expansion introduces a transformative element: senior managers will now bear direct accountability for creating or permitting an environment where bullying, harassment, and discrimination thrive—regardless of whether these behaviours directly impact financial outcomes.

This aligns with the FCA's March 2024 Diversity and Inclusion (D&I) consultation, which explicitly stated that workplace culture failings constitute misconduct under Section 71A of the Financial Services and Markets Act 2000. As the regulator confirmed in its workplace conduct expectations guidance, senior managers must now demonstrate active governance over psychological safety, team dynamics, and grievance resolution pathways.

The practical implication is stark: a finance director at a regional investment management firm in Manchester, or a head of compliance at a Bristol-based insurance brokerage, can now face FCA enforcement action, fines up to £600,000, and prohibition from regulated activities if their organisation experiences substantiated bullying incidents—even if no client has been directly harmed.

Who's in Scope: The 37,000-Firm Challenge

The expansion extends SMR requirements to firms previously exempt from senior manager designation rules. These include:

• Insurance distributors and brokers authorised under the Insurance Distribution Directive
• Credit intermediaries regulated under consumer credit rules
• Wealth and investment advisers with FCA Part 4A authorisation
• Fund administrators and investment service providers managing £1 billion+ AUM
• Consumer credit lenders operating across the UK
• Payment institutions and e-money issuers holding customer funds

Pinsent Masons, the international law firm, analysed the FCA's September 2024 final rules and estimated that approximately 60% of newly in-scope firms currently lack formal senior manager accountability frameworks. This regulatory gap presents an acute compliance challenge across the English Midlands, Northern England, and Scotland—regions with significant concentrations of smaller wealth management and insurance distribution businesses.

In Scotland particularly, where firms like Aberdeen Standard Investments and Baillie Gifford operate alongside numerous independent financial advisers, the transition creates substantial governance demands. The FCA's Policy Statement 24/2, published November 2024, clarified that Scottish firms must implement SMR governance by the September 2026 deadline—no transition relief is available.

Bullying and Harassment: A New Enforcement Frontier

The inclusion of bullying and harassment within the misconduct framework represents the FCA's most contentious regulatory innovation in five years. Previous enforcement actions focused on remuneration, conflicts of interest, and risk governance. The new regime inverts this logic: cultural failure becomes a compliance violation.

Under the expanded rules, senior managers must now:

1. Establish clear reporting pathways for bullying and harassment complaints, with documented escalation protocols
2. Conduct annual culture assessments that specifically measure psychological safety and peer relationships
3. Demonstrate proportionate investigations of substantiated complaints, with documented remedial action
4. Maintain audit trails showing how misconduct allegations were evaluated against the FCA's revised misconduct definition
5. Train all relevant staff (annually) on what constitutes bullying under FCA definitions—which extend beyond legal definitions of harassment under the Equality Act 2010

The FCA's definition proves deliberately expansive. In its Misconduct Guidance FG24/5, issued June 2024, the regulator states that bullying includes:

• Persistent exclusion from team communications or decision-making processes
• Setting unachievable performance targets with intent to undermine confidence
• Aggressive criticism of work product unrelated to legitimate business objectives
• Deliberate withholding of information necessary for role performance
• Public criticism designed to humiliate or diminish professional standing

This breadth is intentional. The FCA's stated objective, articulated by Executive Director of Supervision Nikhil Rathi, is to shift firm culture away from short-term performance pressure toward sustainable, ethics-led behaviour. Enforcement actions will follow.

Practical Compliance Challenges: HR and Governance Implications

For finance firms already operating under SMR, the expansion creates operational friction. Senior managers must now balance fiduciary duties to shareholders (often predicated on cost control and performance efficiency) against FCA expectations of non-punitive, psychologically safe working environments. These objectives, whilst not inherently contradictory, create genuine tension in high-pressure trading floors, back-office operations, and client-facing advisory roles.

Pinsent Masons identified three specific compliance flashpoints:

Documentation and Investigation Standards: Many firms lack formal investigation protocols meeting FCA standards. The regulator expects documented interviews, witness statements, impartiality assessments, and legal review of findings before conclusions are reached. Regional firms and smaller operators often resolve conduct issues informally—a practice the FCA now treats as non-compliance.

Proportionality in Remediation: The FCA expects disciplinary responses proportionate to alleged misconduct. A senior trader accused of creating an intimidating environment should face meaningful consequences (suspension, remuneration clawback, role reassignment), not a verbal warning. Firms must now implement disciplinary frameworks auditable against FCA expectations.

Culture Measurement: Firms must demonstrate quantifiable improvements in psychological safety. This typically requires annual culture surveys conducted by independent third parties, with results benchmarked against FCA-approved metrics. Smaller firms managing £500 million to £2 billion in assets often lack the infrastructure for this level of systematic measurement.

The Bank of England's Parallel Banking Standards

The FCA's moves occur within a broader regulatory ecosystem shift. The Prudential Regulation Authority (PRA), overseeing systemically important banks operating across the UK, simultaneously tightened its Individual Accountability Framework (IAF). Whilst the PRA targets larger institutions, its emphasis on cultural accountability and misconduct responsibility creates regulatory consistency that influences FCA expectations.

Firms operating dual-regulated status (many larger players across London, Edinburgh, and regional hubs) must now navigate overlapping accountability regimes. A senior manager breaching both FCA and PRA expectations faces compounded enforcement risk—the regulator with the stronger enforcement case typically acts first, whilst the second regulator coordinates its response.

Sector-Specific Pressures: Wealth Management and Insurance

Wealth management firms face particular pressure. The FCA's February 2024 thematic review of wealth management found that approximately 40% of larger advisory firms lacked documented procedures for handling adviser complaints. For firms planning M&A activity (particularly common in the Midlands and South, where consolidation accelerates), unresolved cultural issues become transaction risk—acquirers now conduct FCA compliance audits examining misconduct reporting history.

Insurance brokers, newly brought within scope, face a steeper compliance curve. Many operate as partnerships or small limited companies with informal management structures. Designating senior managers with clear accountability for misconduct governance requires structural reorganisation unfamiliar to the sector.

The FCA has published specific transition guidance for insurance and credit distributors, but resource constraints mean many firms will struggle to achieve full compliance by September 2026. Early engagement with compliance consultants (demand for which has surged across the Big Four and specialist boutiques) is already underway.

Enforcement Trajectory: Early Signals

The FCA has not yet launched enforcement actions explicitly citing bullying under the expanded misconduct regime—the rules don't take effect until September 2026. However, precedent offers clear signals.

In 2023, the FCA fined Lloyds Banking Group £117 million for conduct failings related to its HBOS Reading branch scandal. Whilst the misconduct predated current rules, the regulator's investigation examined senior management accountability for creating an environment where misconduct flourished. The FCA's enforcement decision explicitly found that senior managers failed to establish adequate oversight mechanisms—a finding directly echoing the new bullying-inclusive accountability framework.

Similarly, in its enforcement action against Goldman Sachs UK in 2020 (relating to 1MDB misconduct), the FCA examined whether senior managers sufficiently questioned suspicious transaction patterns. The current expansion extends this logic: senior managers will now face similar scrutiny for failing to question suspicious cultural indicators (sudden staff turnover, unresolved grievance backlogs, negative employee survey comments).

Preparation Strategies: What Finance Leaders Must Do Now

Audit Current Misconduct Governance: Finance leaders should commission independent audits of current misconduct policies, investigating capabilities, and documentation standards. Identify gaps against FCA expectations (available in FG24/5).

Establish Clear Accountability Mapping: Designate senior managers with explicit, documented responsibility for misconduct oversight. This must be reflected in role descriptions, board papers, and annual appraisals.

Implement Culture Measurement: Establish baseline culture surveys using FCA-aligned metrics. Work with specialist consultants (Pinsent Masons, Deloitte, Mercer) to design proportionate measurement appropriate to firm size.

Overhaul Investigation Protocols: Develop formal misconduct investigation procedures meeting FCA expectations—documented interviews, witness statements, impartiality assessments, proportionate remediation frameworks.

Train Senior Managers: Conduct targeted training for all designated senior managers on the expanded misconduct definition, with specific focus on recognising and responding to bullying scenarios.

Engage Early with Regulators: Firms uncertain about specific compliance expectations should proactively engage FCA supervisory teams. The regulator has signalled willingness to provide guidance during the transition period.

Forward-Looking Analysis: The Cultural Accountability Era

The September 2026 expansion marks a fundamental shift in UK financial services regulation. For three decades, misconduct frameworks focused on financial outcomes and consumer protection—preventing fraud, ensuring fair pricing, maintaining market stability. The expanded regime treats organisational culture as a regulatory end in itself.

This reflects three broader regulatory impulses. First, post-COVID evidence demonstrating that hybrid and remote working arrangements (increasingly common across finance) can mask cultural problems—the FCA wants formal governance structures compensating for reduced informal oversight. Second, the #MeToo movement's impact on corporate accountability, accelerated by recent scandals in UK financial services (particularly in investment banking). Third, retention crises affecting smaller firms, where bullying-driven staff turnover now appears as a material business risk that regulators must address through enforcement incentives.

Finance leaders should anticipate that the FCA will intensify misconduct enforcement from 2027 onward, as the regulator builds case law establishing what constitutes unacceptable cultural failure. Early compliance movers (firms implementing robust frameworks by end-2025) will gain competitive advantage—they'll have documented evidence of good faith compliance efforts, which typically influences enforcement discretion should allegations later arise.

For the most ambitious firms, this transition represents an opportunity. Organizations genuinely embedding psychological safety and merit-based accountability will find recruitment and retention advantages in a sector facing chronic talent shortages. Culture, previously treated as HR department responsibility, is now board-level governance risk. Finance leaders recognising this shift earliest will navigate the September 2026 transition with confidence rather than crisis.

The 37,000 firms bringing themselves into scope have approximately 16 months to prepare. That window is narrowing. Firms waiting for September 2026 to begin compliance planning will face rushed implementations, incomplete documentation, and enforcement vulnerability. The regulator's approach is already clear: accountability is non-negotiable, and the misconduct definition now encompasses behaviours previously treated as HR matters rather than regulatory violations.