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Overview of FCA Principles for Business

    

The Financial Conduct Authority (FCA) is the conduct regulator for nearly 60,000 financial services firms and financial markets in the UK, and it's part of the FCA's work to implement, supervise and enforce international standards and regulations in the UK. The UK regulator has criminal, civil and regulatory enforcement powers.

In this article, we explain the FCA's 11 Principles for Business (PRIN), their purpose, how they are used to regulate the market in the UK, and the consequences of breaching the Principles.

What are the FCA Principles for Business (PRIN)?

The FCA Handbook states that regulated firms must adhere to their 11 principles of business, which are fundamental obligations that contribute to the regulator objective to restore and maintain market integrity and protect consumers.

Overall, the FCA principles for business (PRIN) applies to worldwide activities that could negatively affect the UK financial system. If a firm breaches the Principles, the FCA can apply disciplinary actions such as remove the firm's authorisation to operate. All authorised firms must be aware of the 11 PRIN to ensure they are implemented and standards are met.

FCA Principles for Business and Why Are They Important?

The FCA work around these Principles (PRIN 2.1):

  1. Integrity
  2. Skill, care and diligence
  3. Management and control
  4. Financial prudence
  5. Market conduct
  6. Customers' interests
  7. Communications with clients
  8. Conflicts of interest
  9. Customers: relationships of trust
  10. Clients' assets
  11. Relations with regulations

Regulation of the sector is very important for the economy and regulators such as the FCA plays a critical role in ensuring the market operates to support economic growth. The UK financial services industry employs over 2.2 million people, contribute £65.6 billion in tax to the UK economy and generates 7.2% of the UK's economic output, making the UK the highest net exporter of financial services. A recent report ranked London the second-largest financial centre in the world (narrowly behind New York).

  • The UK handles more foreign exchange than the next four largest centres combined.
  • The UK also manages 70% of the secondary market turnover in international bonds.

Source: "Financial services: contribution to the UK economy."

These stats sum up the importance of the FCA work and the impact of their decisions on the economy. When a firm is regulated by the FCA and adheres to the UK PRIN, they reduce the risk of being fined and benefit their business by increasing customers' trust. Firms that put their customers at heart and protect them above the firms' profit or income can win more business through a relationship of trust with their customers and gain the FCA's trust as well.

Consequences of Breaching the Principles

The FCA Handbook contains the complete record of FCA rules and regulations, and all firms must comply with the different areas of compliance in the document. The FCA supervises how firms work and can fine, prosecute or stop those that don't meet the conduct standards from carrying out regulated activities.

The Handbook explains how the FCA determines whether there has been a failure to comply with the rules. According to the Handbook, the FCA will consider the full circumstances of each case when deciding whether or not to take action for a financial penalty or public censure.

The consequences can vary. Recently the FCA carried out disciplinary actions on senior managers regarding breaches of Principles 2, 3, and 11 and said that senior managers failed to act with due skill, care and diligence over "wash trades" by not taking any steps to investigate the legitimacy of trades. In this case, the FCA fined Tullett Prebon (Europe) Limited (Tullett Prebon) £15.4 million.

In another recent case and one of the most significant investigations in the UK, the FCA found Goldman Sachs International (GSI) in breach of Principles 2 and 3. The FCA then fined GSI £96.6 million in October 2020.

Our blogs on FCA expectations, alerts and investigations:

The FCA works with a network of organisations to raise awareness of their approach to regulation and campaign to clarify real and meaningful consequences for firms and individuals who don't follow the rules. More recently, the UK regulator said it would update its approach to use its wide range of enforcement powers to protect the market and consumers and take action against firms and individuals who do not meet the standards.

Using Technology to Achieve Compliance

MyComplianceOffice automates the end-to-end management of request processes, compliance monitoring and exception management associated with conflict of interest policies, helping firms embed best practices in their compliance program and mitigate the risk of misconduct.

Our platform covers areas of compliance that are crucial to comply with the FCA PRIN, such as Personal Account Dealing, Trade Surveillance, Suitability, Licensing & Registrations, SMCR.

MyComplianceOffice allows firms to address both personal and transactional conflicts of interest, identifying conflicts across employee, firm transactions and third parties.​ All products on the MyComplianceOffice platform are available as a Suite of Conduct Risk Solutions that can be purchased a la carte or as complete modules​ that are less costly to buy and install.

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