FCA Use of Principles and Outcomes

What are the FCA Principles for Businesses (PRIN)

1. Integrity

2. Skill, care and diligence

3. Management and control

4. Financial prudence

5. Market conduct

6. Customers' interests

7. Communication with clients

8. Conflicts of interest

9. Customers: relationship of trust

10. Clients' assets

11. Relationship with regulators

12. Consumer Duty

What is the FCA Consumer Principle

Consumer Principle: "A firm must act to deliver good outcomes for retail customers."

How does it affect Principles 6 and 7

Principles 6 and 7 no longer apply to dealings with retail customers, principle 12 applies instead.

What are principles-based regulations

• No rule for every situation

• General principles specify required behaviours

What are outcomes-based regulations

• Developed following the financial crisis

• Make judgments about the future

• Assess risk

• Analyse firms at firm level

• Supervisors supported by prudential and conduct risk specialists

• Underpins the Supervisory Enhancement Programme (SEP)

What are the key cultural drivers of corporate culture

• Leadership (tone at the top)

• Strategy (clear vision for FTC)

• Decision-making and challenge (external feedback)

• Controls (collect/interpret MI)

• Recruitment, training and competence (behaviours/values at core)

• Reward (not focused on production targets)

What should leadership do to promote fair treatment of customers (FTC)

• Walk the talk

• Use MI to ensure fair customer outcomes

What are examples of good FTC leadership

• Demonstrate commitment

• Implement strong FTC leadership

• Maintain high FTC standards

• Listen to and act on staff feedback

What are examples of poor FTC leadership

• FTC meaning not identified

• FTC inappropriately delegated

• Ineffective communication

• Outcomes inconsistent with strategy

• FTC risks not identified or addressed

What is corporate governance

• Governance, risk management and compliance (GRC)

• Part of the whole corporate governance system

• Connects risk, compliance and ethics to the principles-based approach

What is the Code of Conduct (COCON)

• Replaces the Approved Persons Regime for SM&CR firms

• Contains individual conduct rules and senior manager conduct rules

What are the individual conduct rules under COCON

• Act with integrity

• Act with due skill, care and diligence

• Be open and cooperative with regulators

• Treat customers fairly

• Observe proper standards of market conduct

• Act to deliver good outcomes to retail customers

What are the senior manager conduct rules under COCON

• Effective control

• Regulatory compliance

• Responsible delegation

• Disclosure to regulators

Who do the Statements of Principle for Approved Persons apply to

• Non-SM&CR firms

• Appointed Representatives (ARs)

• Individuals carrying out controlled functions

What additional requirement applies to accountable higher management functions

Additional Principles 5–7 apply.

What are the Statements of Principle for Approved Persons

1. Integrity

2. Skill, care and diligence

3. Market conduct

4. Open and cooperative

5. Organisation and control

6. Skill, care and diligence in managing

7. Compliance

What is the Code of Practice for Approved Persons

• Expands on the Statements of Principle

• Explains expected conduct in greater detail

Who does the Fit and Proper Test apply to

• Senior managers

• Approved persons (determined by regulator)

• Certification functions (determined by firm)

What criteria must be met under the Fit and Proper Test

• Honesty, integrity and reputation

• Competence and capability

• Financial soundness

What additional Fit and Proper requirements apply to senior managers

• Clear, appropriate and recorded allocation of significant responsibilities

• FCA can take action against individuals

• Firms must take action and notify the FCA immediately if an SM&CR individual is no longer fit and proper

How should firms manage conflicts of interest

• Identify conflicts (taking a broad view)

• Mitigate conflicts

• Maintain a policy owned by senior management

• Monitor and follow up the policy