FCA Conduct Rules for Better Financial Service

Financial institutions are the primary financial providers in the country, and they conduct business of varying complexity. As a result, the financial services industry is highly regulated and under the FCA’s oversight. Financial firms that the FCA regulates have to meet standards to provide services to the public. These standards are called the FCA conduct rules, and financial firms face strict penalties if they fail to follow them.

The rules ensure that financial firms treat customers fairly, observe proper standards of market conduct, act with integrity, and comply with regulatory requirements. In addition, financial services firms that work under the supervision of the FCA must abide by these conduct rules.

So if you’re looking for insight into financial conduct rules, you’ve come to the right place. In this blog post, we’ll cover all you need to know about financial conduct rules, how they came into being, their importance in ensuring financial services firms operate ethically, and who they apply to.

What is the FCA?

• The Financial Conduct Authority (FCA) is the UK’s financial regulator, responsible for overseeing and regulating the financial department
• The FCA sets the Fit & Proper Requirements and Conduct rules to ensure that only firms and individuals with the necessary skills, knowledge, and experience are allowed to operate within the financial sector
• Under the conduct rules, firms must conduct their business in a fair, transparent, consistent, and appropriate manner
• The conduct rules form a fundamental part of the Senior Managers and Certification Regime, which will apply to all FCA-authorised firms from December 2019
• Under this regime, senior managers of a private limited company must be of’s moral character’ – defined under the rules as having ‘integrity’ – and should have ‘sufficient relevant experience in their role
• Any individual or firm seeking to become an FCA-authorised firm must demonstrate that it has the necessary skills, knowledge, and experience to meet the requirements of the conduct rules.
• Recently, the FCA has outlined its new Consumer Duty proposals. This will put a duty on firms providing regulated financial products or services to customers to ensure they know those products’ risks and any relevant information.
• Furthermore, it has introduced new standards for customer interest agreements that give customers an outline of what they could expect if they agree with a firm.
• As with any regulatory framework, certain requirements set by the FCA must be upheld by businesses operating within its jurisdiction.

What is the Role of the FCA?

The UK’s financial regulatory body is the Financial Conduct Authority (FCA). It has various responsibilities, including ensuring firms regulated by the FCA provide financial services appropriately and fairly. The FCA also oversees the financial services market and enforces regulatory requirements.

The FCA has several conduct rules, such as the Consumer Protection Code and the Senior Managers and Certification Regime. Under this regime, the senior management of regulated firms must set the standards they expect of their staff, regularly review them, and ensure they are certified.

The conduct rules form the basis of the Consumer Protection Code, which sets out requirements for financial services firms about services provided to consumers. This includes requirements relating to how financial services firms deal with customers’ complaints and whether they provide relevant information about financial products quickly and easily.

The Consumer Protection Code also requires financial services firms to ensure that customers can access appropriate financial services at an affordable price. The conduct rules also regulate the market conduct of individual firms, including requirements on the market conduct of individual firms regarding market abuse.

The conduct rules are designed to create a fair and sustainable financial services sector that serves its customers well. In addition, the FCA is introducing new proposals such as the Consumer Duty, which will require all regulated firms offering certain financial products and services to consider their customers’ interests when setting prices or terms of service.

This will help customers get the financial product or service they want at an affordable price.

Why Have the FCA Conduct Rules Been Implemented?

The FCA Conduct Rules have been implemented in the financial services sector to reinforce behaviour standards and improve organisational culture. The rules protect customers’ interests and ensure they are treated fairly.

The individual conduct rules set out the minimum standards of conduct required of all financial service staff. The senior manager conduct rules outline the standards of conduct expected of senior managers and the requirements for training, certification, and competency assessment.

These rules seek to improve organisational culture by increasing personal accountability and accountability for regulatory requirements. By adhering to these standards of conduct, everyone can work towards building strong financial services for business that is trustworthy and compliant with regulatory requirements.

Who Does FCA Conduct Rules Apply to?

The Financial Conduct Authority (FCA)’s conduct rules apply to nearly all employees in a financial firm, with a few exceptions, such as receptionists, switchboard operators, postroom staff, and print room staff. In addition, the conduct rules apply to firms of any size and all staff except ancillary staff.

The conduct rules reinforce the standards expected of staff in their day-to-day roles, such as financial soundness, integrity and skill. In addition, they cover conduct standards relating to market conduct, business conduct, customers and business relationships, personal conduct and other general standards. This includes training, supervision, record-keeping, conflict of interest and whistleblowing requirements.

Firms must ensure their staff understand these rules and their obligations concerning them. They must also explain the conduct rules clearly to their staff at an appropriate level of detail. Failure to do so can result in a fine or other sanction.

FCA Conduct Rules

The Financial Conduct Authority (FCA) has recently introduced new Conduct Rules that apply to all firms’ staff, including senior managers and those carrying out unregulated financial services activities. The new rules cover the ethical standards of behaviour expected of staff and requirements around training, conduct and responsibilities.

The rules apply to anyone working in regulated firms and are divided into two sets: the individual conduct rules for all staff and the senior manager conduct rules for senior managers only.

These rules include acting with integrity, due skill, care and diligence, being open and cooperative with regulators, paying due regard to customer interests and observing proper market conduct standards. Staff must understand the requirements of the Conduct Rules and update their training/CPD records accordingly to ensure compliance.

Individual conduct rules

The individual conduct rules (ICS) are part of the Senior Managers and Certification Regime and apply to almost all employees and directors of financial services firms. They require staff to act with integrity, due skill, care, and diligence and to be open and cooperative with the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and other regulators.

The individual conduct rules ensure that staff behave consistently with the interests of their customers, the public, and the firms. Staff who fail to uphold these standards can be held accountable for their actions. The individual conduct rules also encourage staff to report misconduct promptly and openly.

The individual conduct rules include requirements surrounding conduct such as misleading clients; falsifying documents; mismarking a trading position’s value; failing to explain investment risks to customers; and failing to acknowledge or seek to resolve mistakes in dealing with customers. These requirements help protect customers from dishonest behaviour by staff.

If staff breaches individual conduct standards, they could face disciplinary action, including dismissal.

The individual conduct standards are an important part of the FCA’s regulatory regime for ensuring financial services firms operate ethically. By setting out standards for staff, the individual conduct standards create an environment where customers can have confidence in their financial services provider.

Conversely, if staff do not uphold these standards of conduct, it can lead to misconduct or regulatory action being taken against the firm or individual concerned.

Examples of breaches include misleading clients, falsifying documents, mismarking a trading position’s value, failing to explain investment risks to customers, and failing to acknowledge

Rule 1: You must act with integrity

You must act with integrity in all your professional dealings if you are an Authorised Person. This means, for example, that you

• Must not commit a criminal offence
• Must not behave in a way which would cause serious damage to the reputation of the financial services industry
• Must not mislead or be dishonest with clients, colleagues, employers, the regulator or others

Rule 2: You must act with due skill, care and diligence

The conduct rules of the firm govern the conduct of individual staff members. These rules outline the standards of conduct that all employees are expected to follow. It includes rules like acting with due skill, care, and diligence and treating customers fairly.

All staff must act with due skill, care, and diligence in their work for the firm. This means that they must professionally conduct themselves and take appropriate steps to ensure the safety and security of customers and the financial system.

It also requires treating customers fairly and respecting their small businesses and interests. If individual staff members fail to act with due skill, care, and diligence or treat customers unfairly, it can erode the trust of customers in the financial services industry.

Rule 3: You must be open and cooperative with the FCA, the PRA and other regulators

Under the Individual Conduct rules, the individual conduct of staff must be by the relevant regulatory requirements and standards. These require staff to cooperate with the FCA, the PRA, and other relevant regulatory authorities.

For example, failure to promptly report information in response to questions from the FCA, the PRA, or both may constitute a breach of individual conduct rules. All staff must act with integrity, due care, skill, and diligence while cooperating with regulatory authorities.

These individual conduct rules help ensure that staff is committed to complying with regulatory requirements and upholding high standards of conduct while providing valuable services to customers.

These individual conduct rules stipulate that staff must act with integrity, due care, skill, and diligence while being open and cooperative with the FCA, the PRA, and other relevant regulatory authorities. They ensure that staff is committed to complying with regulatory requirements and upholding high standards of conduct while providing valuable services to customers.

Understanding these individual conduct rules is essential for ensuring compliance with regulatory requirements and upholding high standards of conduct while providing valuable services to customers.

Rule 4: You must pay due regard to the interests of customers and treat them fairly

Firms must always act in the best interests of their customers and treat them fairly. They must provide clear and accurate information about their products and services. Financial firms should not engage in activities that could undermine the financial markets’ integrity, such as insider trading or market manipulation.

This rule also applies to the staff of financial firms. They must pay due regard to customers’ interests and treat them fairly. Firms must act with integrity, due skill, care, and diligence; be open and cooperative with the FCA, the PRA, and other regulators.

By adhering to these individual conduct rules, financial firms can demonstrate their commitment to fair business practices and protect their customers from unscrupulous business practices.

Rule 5: You must observe proper standards of market conduct

Rule 5 of the Conduct rules of the FCA requires financial firms to conduct business by proper standards of market conduct. It prohibits financial firms from manipulating or attempting to manipulate a benchmark or a market.

The rule also applies to individual investors’ market activities, such as attempting to manipulate price competition. According to Liz Hornby, Compliance Expert at John L. Steinway & Sons, individual conduct rules are an important safety and security feature of the financial system that protects the interests of customers and the integrity of the markets.

No one should find these requirements surprising, as they help ensure fair and orderly market operations and protect customers from abusive trading practices. Moreover, these rules are essential for maintaining the financial system’s stability and providing customers with a safe and reliable means of making financial transactions.

Senior manager conduct rules

The FCA, the regulatory body of the UK financial sector, has recently implemented a conduct rule for senior managers – the ‘Senior Managers and Certification Regime’ (SMCR).

There are four rules for Senior Managers set by the FCA, which include taking reasonable steps to ensure the firm’s business is controlled effectively, ensuring it complies with regulatory requirements and standards, acting with integrity, due skill, care and diligence, and to observe proper standards of market conduct. Below are the important conduct rules for senior managers,

Rule 1: You must take reasonable measures to ensure your firm’s operations are well-managed.

Rule 2: You must take reasonable steps to ensure that the regulatory system’s relevant requirements and standards are followed by the business for which you are responsible.

Rule 3: You must make sure that any delegation of your tasks is to the right person and that you are monitoring the task’s execution effectively. You must take adequate steps to do so.

Rule 4: Any information the FCA or PRA would reasonably expect to be notified of must be disclosed appropriately.

All firms and staff need to follow these conduct rules as they protect the interests of customers and investors. Breaches of these rules may result in future regulatory references or a finding that the Individual is not fit and proper, thereby discouraging them from engaging in such misconduct.

Conclusion

The conduct rules are an essential part of the FCA’s system of regulatory standards. The conduct rules ensure that firms comply with the requirements of the Conduct of Business regulations, which set out standards of business conduct for financial services firms and individual market conduct for senior managers.

These rules help the FCA monitor market conduct and the conduct of firms, senior managers, and individual market conduct. They also help market participants understand their responsibilities and assess whether their conduct meets regulatory requirements.

Their ultimate goal is to ensure that firms comply with regulatory requirements and market conduct standards so that consumers receive appropriate financial services. If a firm breaches the rules, it may face penalties or disciplinary actions from the FCA.

FAQ – FCA Conduct Rules

Where do FCA conduct rules apply overseas?

FCA conduct rules apply to firms and staff within a firm, except ancillary staff, both in the UK and overseas.

The Conduct Rules ensure that firms and individuals in the financial sector have the necessary skills, knowledge and experience. Some of the topics covered under the Conduct Rules include financial soundness, proper standards of market conduct, and compliance with Conduct Rules overseas.

Firms should review the FCA’s text to identify which roles are exempt from the Code of Conduct and to ensure compliance with Conduct Rules overseas.

What is the purpose of FCA conduct rules?

The FCA conduct rules ensure that only firms and individuals with the necessary skills, knowledge, and experience can operate within the financial sector. The conduct rules were introduced to implement the SMCR (Supervisory Measures and Compliance Requirements) to replace existing Principles for Approved Persons.

The conduct rules reinforce the standards expected from staff carrying out their day-to-day roles. The conduct rules apply to all firms and all staff within a firm, except for ancillary staff.

What are the aim of FCA rules?

The Financial Conduct Authority (FCA) has a number of aims when it comes to rules and regulations. These include ensuring financial firms and individuals working within the financial sector meet the necessary standards to operate safely and responsibly and that firms have the financial resources to carry out activities safely.

Who are conduct rules staff?

Conduct Rules staff are employees of firms who are responsible for their adherence to Conduct Rules. Senior Managers are a subset of Conduct Rules staff subject to a different set of Conduct Rules. Conduct Rules staff must be trained on how the rules apply to their role by 31st March 2021.

All firms and their staff must comply with the Conduct Rules, except ancillary staff (e.g. receptionists, reprographics staff, and security guards). The Conduct Rules are a set of basic standards of good personal conduct that apply to all Conduct Rules staff.

Which employees are covered by conduct rules?

All firms, and all staff within a firm, are subject to Conduct Rules except ancillary staff such as receptionists, reprographics staff, and security guards. Two sets of Conduct Rules apply to all staff, including Senior Managers.

The Conduct Rules are designed to shape firm culture and improve standards of individual behaviour across the financial sector. Firms must ensure that relevant staff are trained on the Conduct Rules and how they apply to their role.

Are FCA rules legally binding?

Yes, the FCA’s Conduct Rules are legally binding.

The Conduct Rules, part of the Senior Managers and Certification Regime, comprised five Conduct Rules that financial firms and individuals working within the financial sector must follow.

These rules include requirements such as being assessed and certified as fit and proper at least once a year to comply with the Conduct Rules.

In addition to the individual Conduct Rules, the Conduct Rules also include provisions for firms using social media to communicate information and promote products.

What is FCA conduct risk?

FCA conduct risk is the risk of an individual acting with integrity, due skill, care and diligence when working in financial services. This includes not misleading customers or regulators and informing them of the risks of any investment.

When an individual fails to comply with the FCA’s rules, this can lead to a finding that the Individual needs to be fit and proper to work in financial services.

What are the three pillars of FCA?

The three pillars of the FCA are the Senior Managers Regime, the Certification Regime, and the Conduct Rules.

The Senior Managers Regime ensures senior positions have the necessary skills and knowledge and are held accountable for their actions. The certification regime ensures that high-impact staff are skilled, knowledgeable, and qualified.

The conduct rules form the pyramid’s base and set out rules for FCA-authorized firms. Finally, the FCA outlines Fit & Proper Requirements and Consumer Duty proposals which firms and individuals should meet.