The Senior Managers & Certification Regime (SM&CR) as well as the Senior Manager Conduct Rules establish clear senior management responsibility for complying with the requirements and standards of the regulatory system. These requirements apply equally to the Consumer Duty as they do to other Principles and rules.[1]
Specifically, every senior manager should be clear about what they are responsible and accountable for, and how they are ensuring that the business of the firm complies with the requirements of the Consumer Duty on an ongoing basis. Senior managers will be accountable for delivering good consumer outcomes within their areas of responsibility. They should expect to be asked about the role that they will play in delivering good outcomes for customers when they are seeking approval or engaging with the FCA.[2]
New conduct rule
The new Consumer Duty regulations introduce an additional “individual conduct rule” into COCON 2.1 under the SM&CR. This states that:
“Rule 6: You must act to deliver good outcomes for retail customers”.[3]
Rule 6 applies to ALL conduct rules staff, regardless of whether the person has direct contact or dealings with retail customers.[4] However, it is worth noting that a person’s conduct is not within the scope of Rule 6 above if the related activities of the firm fall outside the scope of Principle 12 (i.e. the new FCA Principal that “A firm must act to deliver good outcomes for retail customers”).[5]
Note also that a person may be a “retail customer” of a firm for the purposes of Rule 6 even though that person is NOT a direct client of the firm and there is no direct relationship between them.[6]
Where Rule 6 is applicable, it still only applies to the extent that it is reasonable and proportionate. As such, the scope of a person’s job and their seniority may affect the scope of their obligations under the rule. Put simply, the more senior a person is and the more relevant their role is to the Consumer Duty, the more the FCA expects from that individual in delivering good outcomes for customers.[7]
Rule 6 applies within the context of what is “reasonable”
Rule 6 must be interpreted in accordance with the standard that could reasonably be expected of a prudent member of a firm’s conduct rules staff. Factors relevant to this standard include:
- the individual’s seniority,
- the scope of the individual’s job and in particular the degree to which the responsibilities of the job are able to affect the outcomes experienced by retail customers,
- the individual’s level of expertise and experience,
- the expertise and experience that the firm reasonably expects the individual to have,
- the expertise and experience that the firm should (under the regulatory system) ensure that the individual has, and
- the degree of discretion and judgment the person has in their job (for example, whether they are bound to a script or process when dealing with retail customers).[8]
Individual conduct rule 6 versus individual conduct rule 4
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”) DOES NOT APPLY to that conduct of that person.[9]
However, individual conduct rule 6 imposes a HIGHER and MORE EXACTING standard of conduct in relation to a firm’s retail market business relative to what individual conduct rule 4 would have otherwise required. Rule 6 also has a BROADER application in relation to a firm’s retail market business relative to Rule 4, with a greater focus on consumer protection outcomes for retail customers, including where those retail customers do not stand in a client relationship with that firm in the distribution chain.[10]
To the extent that the guidance on individual conduct rule 4 says that behaviour would amount to a breach of individual conduct rule 4 (in the event that rule 4 had applied), that behaviour is likely to amount to a breach of the new individual conduct rule 6.[11] However, where a person is acting in accordance with guidance on rule 4, that should NOT be relied on alone in considering whether rule 6 has been complied with.[12]
[1] FG22/5, 10.18
[2] FG22/5, 10.20; Policy Statement PS22/9, 13.13
[3] COCON 2.1.6R (see page 153)
[4] COCON 4.1.28G (see page 156)
[5] COCON 1.17DG (see page 152)
[6] COCON 2.4.4G (see page 154) – this is the effect of paragraphs (2)(f) and (2)(g) of the definition of “retail customer”
[7] FG22/5, 10.23
[8] COCON 4.1.29G (see page 156)
[9] COCON 1.17ER (see page 152)
[10] COCON 4.1.24G (see page 156)
[11] COCON 4.1.26G (see page 156)
[12] COCON 4.1.27G (see page 156)
