The “Conduct Rules” are a set of high-level standards which apply DIRECTLY to almost everyone working within the UK financial services industry.
Here’s what you need to know…
- Broadly, the Conduct Rules apply DIRECTLY to everyone working in the financial services industry, except “ancillary staff” and appointed representatives. They are designed to drive cultural change.
- There are 5 “Individual Conduct Rules” which apply to all in-scope individuals.
- The 5 Individual Conduct Rules are:
- You must act with integrity.
- You must act with due skill, care and diligence.
- You must be open and cooperative with the FCA, the PRA and other regulators.
- You must pay due regard to the interests of customers and treat them fairly.
- You must observe proper standards of market conduct.
- On 31 July 2023, a sixth “Individual Conduct Rule” will be introduced: “You must act to deliver good outcomes for retail customers.”
- To the extent that Individual Conduct Rule 6 applies, Individual Conduct Rule 4 (“You must pay due regard to the interests of customers and treat them fairly”) will NOT apply. However, Rule 6 applies a HIGHER, MORE EXACTING standard of conduct than Rule 4, and is BROADER in application.
- In addition to the Individual Conduct Rules, there are 4 “Senior Manager Conduct Rules”. These apply only to Senior Managers.
- The 4 Senior Manager Conduct Rules are:
- You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
- You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
- You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
- You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
- The Conduct Rules only apply to conduct performed from an establishment in the UK or which involves dealing with a UK-based client.
- However, the Conduct Rules apply without geographical limitation to the conduct of Senior Managers and “Material Risk Takers” (a Certification Function).
- Firms must ensure that all in-scope staff are notified of the Conduct Rules that apply to them and take reasonable steps to ensure staff understand how the Conduct Rules apply to them (i.e. they must be provided with “suitable training”).
- A person will only be in breach of the Conduct Rules where they are “personally culpable” (in other words, where their actions were deliberate or their standard of conduct fell below that which is reasonable in all the circumstances).
- In assessing compliance with the Conduct Rules generally, the FCA will have regard to the context in which a course of conduct was undertaken, including (a) the precise circumstances, (b) the function performed by the individual in question, and (c) the behaviour expected in that function.
- In assessing compliance with the Senior Manager Conduct Rules, the FCA will take into account (a) whether the Senior Manager exercised reasonable care, (b) whether the Senior Manager reached reasonable conclusions, (c) the nature, scale and complexity of the firm’s business, (d) the Senior Manager’s role and responsibilities (by reference to their Statement of Responsibilities), and (e) the knowledge they had (or should have had) of regulatory concerns relating to their role or responsibilities.
- Breaches of the Conduct Rules by Senior Managers which lead to disciplinary action must be notified to the FCA within 7 business days, using Form D.
- Breaches of the Conduct Rules by non-Senior Managers must be notified to the FCA annually by the last day of October each year (with respect to the 12-month period ending on the last day of August) using Form H (named REP008 – Notification of Disciplinary Action). However, if the breach is “serious” it must be notified to the FCA immediately.
- Form H (REP008 – Notification of Disciplinary Action) must be lodged with the FCA annually even if it is a nil return.
