Financial services firms in the UK are navigating one of the most demanding periods of employment and regulatory reform in over a decade.
The Employment Rights Act 2025 introduces sweeping changes to UK employment law, with staggered implementation dates running across 2026 and 2027.
Alongside this, the FCA’s final non-financial misconduct framework, set out in Policy Statement PS25/23, takes effect on 1 September 2026.
Together, these developments create what legal experts at Proskauer Rose LLP describe as a dual employment and regulatory risk landscape requiring coordinated preparation across HR, legal, and compliance functions.
One of the most consequential changes arrives on 1 January 2027, when the qualifying period for unfair dismissal protection reduces from two years to just six months.
The statutory cap on compensatory awards, currently set at the lower of 52 weeks’ gross pay and £123,543, will also be removed from that date.
For senior and high-earning employees in financial services, this means potential claims could reference actual remuneration including salary, bonuses, deferred remuneration, and long-term incentive awards.
Firms will need to revisit probation periods, performance management processes, and the strategic handling of negotiated exits, particularly for SMF and certified individuals where regulatory implications are significant.
On sexual harassment, from October 2026 employers will be required to take “all reasonable steps” to prevent harassment, including by third parties, representing a higher standard than the current duty.
For financial services firms, this sharpens focus on conduct occurring in client-facing environments, work-related social events, conferences, networking functions, and interactions with contractors and consultants.
Since April 2026, sexual harassment allegations have been expressly covered as a qualifying disclosure for whistleblowing protection, meaning firms must update their policies, reporting channels, and training materials accordingly.
The FCA Guidance on non-financial misconduct will apply to firms with Part 4A permissions and relevant individuals subject to COCON and the Fit and Proper Test, with supervisory attention now shifting to how firms apply the framework in practice.
The FCA has made clear that firms will not be required to carry out retrospective reviews of past conduct decisions or fitness and propriety assessments.
Firms are also told they need not monitor employees’ private lives or social media accounts, nor investigate trivial, implausible, or irrelevant private-life allegations.
The ERA 2025 will also restrict the enforceability of confidentiality provisions that seek to prevent workers from disclosing information relating to discrimination, harassment, or related misconduct.
From 1 January 2027, dismissals will be automatically unfair where the reason for dismissal is that an employee refused to agree to certain “restricted variations” of their contract, with only limited exceptions for serious financial difficulties.
Proskauer Rose advises that all firms, even those who would not contemplate fire and rehire practices, should review employment contracts, deferred bonus plans, and incentive documentation ahead of January 2027.
There is no general exception for regulatory-driven contractual changes, meaning firms amending remuneration structures in response to FCA or PRA requirements will need flexibility built in from the outset.
Before 1 September 2026, firms should complete a targeted gap analysis across policies, procedures, training, and governance to ensure readiness for the FCA Guidance taking effect.
In practice, firms must be able to demonstrate who made key decisions, what information was considered, and why particular outcomes were reached, especially in borderline cases involving conduct outside the workplace.