Your guide to the conduct rules – Part 6

Individual Conduct Rule 4 (“You must pay due regard to the interests of customers and treat them fairly”)

Individual conduct rule 4 (“You must page due regard to the interests of customers and treat them fairly”) applies to all conduct rules staff, REGARDLESS of whether the individual has direct contact or dealings with customers of the firm.  Accordingly, all conduct rules staff should consider how their actions (or their failure to act) can affect the interests of customers or result in customers being treated unfairly.[1]

As with many of the other individual conduct rules, a breach of individual conduct rule 4 can be triggered by negligence as well as dishonesty or deliberate acts.  Specific examples of the types of conduct that might constitute a breach of individual conduct rule 4 include:

1. failing to inform a customer of material information in circumstances where the individual was aware, or ought to have been aware, of such information and of the fact that they should provide it,
2. recommending an investment to a customer, or carrying out a discretionary transaction for a customer, where the individual does not have reasonable grounds to believe that it is suitable for that customer,
3. undertaking, recommending or providing advice on transactions without a reasonable understanding of the risk exposure of the transaction to a customer,
4. failing to provide adequate control over a client’s assets,
5. providing a customer with a product which is different to the one applied for by that customer (unless the customer understands the differences and understands the product they have purchased),
6. failing to acknowledge, or seek to resolve, mistakes in dealing with customers, and
7. failing to provide terms and conditions to which a product or service is subject in a way which is clear and easy for the customer to understand.[2]

Interaction between individual conduct rule 4 and individual conduct rule 6

There is overlap between a number of the individual conduct rules.  For instance, in many cases, the examples of conduct that would constitute a breach of individual conduct rule 2 (“You must act with due skill, care and diligence”) would also be capable of constituting a breach on individual conduct rule 4.

However, there is obvious and particular overlap between individual conduct rule 4 and individual conduct rule 6 (“You must act to deliver good outcomes for retail customers”).  Indeed, the FCA makes clear that, to the extent that conduct would amount to a breach of individual conduct rule 4, it is also likely to amount to a breach of individual conduct rule 6.[3]

While the guidance on individual conduct rule 4 is undoubtedly relevant to someone in considering their obligations under individual conduct rule 6,[4] individual conduct rule 6 imposes a HIGHER and MORE EXACTING standard of conduct in relation to a firm’s retail market business relative to individual conduct rule 4 would otherwise require.  Individual conduct rule 6 also has BROADER application in relation to a firm’s retail market business than individual conduct 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.[5] As such, the fact that a person acts in accordance with individual conduct rule 4 should not be relied on alone in considering how to comply with individual conduct rule 6.[6]

[1] COCON 4.1.13G

[2] COCON 4.1.14G

[3] COCON 4.1.26G

[4] COCON 4.1.25G

[5] COCON 4.1.24G

[6] COCON 4.1.27G