Introduction of new conduct requirements 

YOUR COMPETENCE MATTERS

Reason for issue:         Introduction of new conduct requirements.

Action required:           Read and ensure your CPD record in your Training Log is updated.

Subject:

FCA Conduct rules for all staff

Date:

October 2019

 

From December 2019, new rules come into force with the Senior Managers and Certification Regime. One element of the new Rules is a set of Conduct Rules that apply to all staff. These Rules reinforce the standards that we would expect from staff carrying out their day-to-day roles. However, these expectations have been laid out clearly in the new Rule book and we have an obligation to ensure that you understand what is expected of you.

 We have therefore provided the following guidance on the Rules themselves and what may constitute a breach. To be clear, firms are obliged to treat a Breach of any of these rules as a matter to be dealt with via the firm’s disciplinary procedure. In addition, the matter will also have to be reported to the FCA as part of our notification requirements.

 The Conduct Rules 

Rule 1: You must act with integrity.

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

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

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

Rule 5: You must observe proper standards of market conduct.

 General factors for assessing compliance

 Generally, a person will only be in breach of any of the rules where they are personally culpable. Personal culpability arises where:

(1) a person's conduct was deliberate; or

(2) the person's standard of conduct was below that which would be reasonable in all the circumstances.

 Common themes

 There are a number of issues which could lead to the breach of a number of rules. To avoid repetition, these can be summarised as follows:

·        Recommending a product to a customer where you do not believe, or, have reasonable grounds to doubt that the product is suitable for that customer.

·        Providing advice or guidance to customers where you are not competent to do so.

·        Not paying due regard to the interests of a customer.

·        Acts, omissions or business practices that could be reasonably expected to cause customer detriment.

·        Failing to explain the risks (downsides) of a product to a customer;

·        Failing to disclose to a customer details of the charges or cancellation penalties for products

·        Misleading, or providing false, inadequate or misleading information to, a client, your employer or the FCA, including details relating to a product, your training, qualifications, past employment record or experience.

·        There are some issues specific to client Assets (money generally):

o  Failing to provide adequate control over a client's assets, including:

o  Failing to segregate a client's assets; and

o  Failing to process a client's payments in a timely manner.

·        To be clear, all of the Rules would require you to escalate issues where you believe a colleague has breached the Conduct Rules

 Specific guidance on individual conduct rules

 Rule 1: You must act with integrity

Breaches would include:

·        Falsifying documents.

·        Destroying documents or recordings relevant to misleading (or attempting to mislead) a client, the firm for whom the person works, or the FCA.

·        Misleading others in the firm about the nature of risks being accepted.

·        Failing to inform a customer, your employer, or the FCA of the fact that their understanding of a material issue is incorrect, despite being aware of their misunderstanding, including, but not limited to, deliberately failing to disclose the existence of falsified documents.

·        Misusing the assets or confidential information of a client or of their firm

·        Designing transactions to disguise breaches of requirements and standards of the regulatory system.

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

The majority of the issues would be covered under the ‘Common themes’ mentioned above. Additionally, continuing to perform a function having failed to meet the standards of knowledge and skill in the Training and Competence source book (TC) for that function would breach this rule.

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

Staff would not normally be expected to report directly to the regulator; however, if you take steps to influence the decision not to report an issue, or obstruct the reporting of information, you may breach the Rule. 

Other breaches would include:

(1) Failing to report promptly in accordance with the firm's internal procedures (or, if none exist, direct to the regulator concerned), information in response to questions from the FCA.

 (2) Failing without good reason to:

a)  inform a regulator of information of which the person was aware in response to questions from that regulator;

b)  attend an interview or answer questions put by a regulator, despite a request or demand having been made; and

c)    supply a regulator with appropriate documents or information when requested or required to do so and within the time limits attaching to that request or requirement.

For these purposes, good reasons could include, where applicable, a right to preserve legal professional privilege, a right to avoid self-incrimination, complying with an order of a court or complying with an obligation imposed by law or by a regulator.

 

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

This applies to all staff, regardless of whether you have direct contact or dealings with customers. You need to consider how your actions (or failure to act) can affect the interests of customers or result in customers being treated unfairly. 

Potential Breaches:

·        Undertaking, recommending or providing advice on transactions without a reasonable understanding of the risk to a customer, including recommending products without a reasonable understanding of the downsides of the product.

·        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.

·        Failing to acknowledge, or seek to resolve, mistakes in dealing with customers (caused by you or someone else).

·        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.

 Rule 5: You must observe proper standards of market conduct. 

In the main, firms involved in General Insurance business have limited opportunity to manipulate markets, however, the term ‘Markets’ includes consumer markets (whether for products, services, credit or otherwise) so any attempt to manipulate price competition could fall foul of this rule.

 Conclusion

 We do not believe that anyone should find any of these requirements surprising. However, if you would like any specific advice or guidance on an issue, please refer the matter to your supervisor.