Payroll providers and AML compliance – What do you need to do?
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Insight
For years, board-level due diligence has focused on familiar risks: financial misconduct, regulatory sanctions, litigation, insolvency, conflicts of interest and adverse media. These checks remain critical, but they may no longer be enough.
The FCA’s new Non-Financial Misconduct (NFM) framework reflects a significant shift in regulatory thinking. Behaviour such as bullying, harassment, discrimination, violence and other serious misconduct is no longer viewed solely as an HR issue. The regulator has made it clear that conduct, culture and personal accountability can all have direct implications for fitness and propriety, regulatory references and an individual’s suitability to hold senior positions. Firms therefore need to look beyond traditional risk indicators when appointing directors, senior managers and other key decisionmakers.
A new regulatory reality
From 1 September 2026, the FCA’s updated NFM framework applies across a much broader range of regulated firms. The regulator has introduced a more consistent approach to defining and assessing serious non-financial misconduct, helping to align expectations across the financial services sector. Behaviour that demonstrates a lack of integrity, appropriate judgement or professional standards may now trigger regulatory scrutiny in ways that many organisations would not previously have considered.
Importantly, the FCA’s focus is not limited to conduct taking place directly within regulated activities. Workplace events, conferences and other employment-related settings may also fall within scope where behaviour raises concerns about an individual’s suitability to hold a regulated position. This broader perspective reflects the FCA’s growing emphasis on culture as a driver of conduct risk and customer outcomes.
For boards and governance teams, the message is clear: character, conduct and behaviour now matter as much as competence and experience.
Why traditional Due Diligence may leave gaps
Many organisations already undertake rigorous due diligence before making senior appointments. Regulatory references are reviewed, qualifications are verified, adverse media searches are conducted and potential conflicts are identified.
However, these processes were not necessarily designed to identify behavioural risks.
A prospective board member may have an impressive professional track record while still carrying unresolved reputational concerns, a history of workplace culture issues or allegations that never resulted in formal disciplinary action. While such matters may not appear in standard background checks, they could nevertheless become highly relevant when considering the FCA’s expectations around integrity, accountability and fitness to hold senior responsibilities.
The challenge is that some of the most damaging risks are not always found within traditional compliance datasets. Instead, they often emerge through a wider assessment of an individual’s public profile, professional associations and historical conduct indicators.
The growing importance of Executive Due Diligence
This is where Executive Due Diligence (Exec DD) is becoming increasingly valuable.
Executive Due Diligence goes beyond standard screening to provide a broader view of potential risks associated with senior individuals. It can help organisations identify reputational concerns, governance issues, historical litigation, corporate affiliations, regulatory matters and adverse media that may not be captured through routine checks. Executive summaries generated through these reviews are designed to provide boards with concise, decision-ready intelligence when assessing board appointments, senior hires, mergers and acquisitions activity, or other high-risk engagements.
The objective is not to uncover trivial issues or invade personal privacy. Rather, it is to help organisations make informed decisions based on a fuller understanding of the risks that could affect governance, reputation and regulatory compliance.
In a regulatory environment where cultural failings are increasingly linked to wider organisational risk, this additional layer of insight can be invaluable.
NFM, Fitness & Propriety and Board Accountability
The FCA has reinforced the connection between non-financial misconduct and fitness and propriety assessments. Firms are expected to consider whether behaviour demonstrates the integrity and professional standards required for regulated roles. The consequences can extend beyond the individual concerned, particularly where organisations fail to identify or respond appropriately to warning signs.
Boards are therefore facing a new level of accountability.
When concerns emerge about a senior individual after appointment, regulators may ask difficult questions about the process that led to that decision. Was the firm aware of potential risks? Were sufficient checks undertaken? Could information have been identified through proportionate due diligence?
The question is increasingly becoming:
“Could the organisation reasonably have identified this risk before making the appointment?”
Where the answer is yes, firms may find themselves under greater scrutiny regarding their governance and oversight arrangements.
Culture is now a governance issue
One of the most significant outcomes of the NFM framework is the elevation of workplace behaviour from an operational concern to a governance concern.
The FCA has consistently highlighted the relationship between culture, conduct and organisational resilience. Poor behaviour that goes unchallenged can undermine decision-making, discourage whistleblowing, weaken accountability and contribute to wider control failures. As a result, boards are expected to understand and oversee behavioural risks with the same seriousness applied to other forms of risk management.
This means organisations need greater visibility into the individuals responsible for setting culture from the top. Senior appointments are no longer simply about technical competence or industry expertise. They are about trust, leadership and the ability to demonstrate behaviours consistent with regulatory expectations.
Practical steps for firms
As firms prepare for the FCA’s new NFM regime, there are several actions boards and governance teams should consider:
- Review existing board and senior appointment processes.
- Assess whether non-financial misconduct risk is explicitly included within due diligence procedures.
- Strengthen documentation and audit trails supporting appointment decisions.
- Update Fit & Proper assessment frameworks to reflect changing expectations.
- Consider where Executive Due Diligence may be appropriate for high-risk or high-profile appointments.
- Ensure boards understand the regulatory implications of culture and behavioural risk.
Taking these steps can help organisations demonstrate a proportionate and risk-based approach while strengthening governance and decision-making.
The FCA’s Non-Financial Misconduct framework represents more than a compliance update. It signals a fundamental shift in how regulators view leadership, accountability and organisational culture.
As scrutiny of senior individuals continues to increase, firms need confidence that those appointed to positions of influence not only possess the right skills and experience but also demonstrate the integrity and behaviours expected by regulators, employees and stakeholders.
In this environment, Executive Due Diligence is becoming an increasingly important part of the governance toolkit. By providing deeper insight into potential conduct and reputational risks, it enables boards to make more informed decisions, strengthen accountability and demonstrate that senior appointments have been assessed with the rigour that today’s regulatory environment demands.
