Conduct Rules 8

Your guide to the conduct rules – Part 8

Individual Conduct Rule 6 (“You must act to deliver good outcomes for retail customers”)

Individual conduct rules 6 (“You must act to deliver good outcomes for retail customers”) is the most recent addition to the list of conduct rules – coming into force on 31 July 2023 as part of the new Consumer Duty.

Individual conduct rule 6 applies to all conduct rules staff, regardless of whether the staff member in question actually has direct contact or dealings with retail customers or not.  Similarly, a person can be a “retail customer” for the purposes of individual conduct rule 6 even if that person is not a direct client of the firm and there is no direct relationship between them.[1] As such, all conduct rules staff should consider how their actions (or their failure to act) can affect the interests of retail customers or result in retail customers not obtaining a good outcome – even where they do not hold a client-facing role.[2]

The essence of the requirement under individual conduct rule 6 to deliver ‘good outcomes to retail customers’ is that conduct rules staff must act in GOOD FAITH towards retail customers.[3]

What does it mean to act in “good faith”?

Acting in good faith is a standard of conduct characterised by:

  1. honesty,
  2. fair and open dealing, and
  3. acting consistently with the REASONABLE EXPECTATIONS for retail customers.[4]

In order to act in “good faith”, conduct rules staff must (amongst other things):

  1. avoid causing foreseeable harm to retail customers (where the firm is part of a distribution chain, “foreseeable harm” may be caused even where another firm in that chain also contributes to the harm[5]),[6] and
  2. enable and support retail customers to pursue their financial objectives.[7]

What can ‘reasonably be expected’ of staff members?

Whether or not conduct rules staff are acting in accordance with individual conduct rule 6 will be judged by reference to the standard that could REASONABLY BE EXPECTED of a prudent person who is subject to the conduct rules and who is:

  1. carrying on the same activity in relation to the same product, and
  2. taking appropriate account of the needs and characteristics of retail customers based on the need and characteristics of retail customers in the relevant target market or of individual retail customers (as the context requires).[8]

In practice, what could ‘reasonably be expected’ of a staff member will depend on a number of factors, including:

  1. their seniority,
  2. the scope of their job and in particular the degree to which the responsibilities of the job are able to affect the outcomes experienced by retail customers (managers are likely to have a greater ability to influence retail customer outcomes in this regard[9]),
  3. their level of expertise and experience,
  4. the expertise and experience that their firm reasonably expects them to have,
  5. the expertise and experience that their firm should (under the regulatory system) ensure they have, and
  6. the degree of discretion and judgment the person has in their job (including, for example, whether they are bound to a script or process when dealing with retail customers and how much discretion and judgment any such script or process leaves to them).[10]

Impact of seniority on what can ‘reasonably be expected’ of staff members

Those in management roles should take note – the ability of a manager of a business area to achieve good outcomes for retail customers is likely to reflect the ability of their business area to do so.  So, for example, the head of a business area dealing with retail customers will have a correspondingly significant responsibility to ensure that those retail customers get good outcomes.[11]

Impact of job role on what can ‘reasonably be expected’ of staff members

A salesperson or staff member providing direct customer support is likely to have a significant influence on the outcomes that a retail customer receives (even if they are junior or subject to a detailed set of procedures).[12] As such, more will be expected of these individuals in terms of ensuring that good outcomes are delivered to retail customers.

Conversely, the scope of the job of a junior staff member carrying out a back-office function may not give much of an opportunity to ensure good outcomes for a retail customer on the sale of a product.[13] The ‘reasonable expectations’ on this type of staff member will be correspondingly less.

Interaction between individual conduct rule 4 and individual conduct rule 6

There is obvious and particular overlap between individual conduct rule 6 and individual conduct rule 4 (“You must pay due regard to the interests of customers and treat them fairly”).  Indeed, the FCA has made 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.[14]

While the guidance on individual conduct rule 4 is undoubtedly relevant to someone in considering their obligations under individual conduct rule 6,[15] 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.[16] 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.[17]

Next time we will turn to look at senior manager conduct rule 1 (“You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively”).

Stay tuned!

[1] COCON 2.4.4G

[2] COCON 4.1.28G

[3] COCON 2.4.6R

[4] COCON 2.4.6R

[5] COCON 4.1.20G

[6] COCON 2.4.7R

[7] COCON 2.4.8R

[8] COCON 2.4.9R

[9] COCON 4.1.30G

[10] COCON 4.1.29G

[11] COCON 4.1.31G

[12] COCON 4.1.35G

[13] COCON 4.1.34G

[14] COCON 4.1.26G

[15] COCON 4.1.25G

[16] COCON 4.1.24G

[17] COCON 4.1.27G