Principles For Businesses Flashcards
Briefly explain what Princples of Businesses (PRIN) is.
Falls under Block 1 - High Level Standards (of the FCA handbook)
PRIN (Principles for Businesses) sets out the basic rules that firms must follow to operate properly:
- General obligations: explains the fundamental duties and expectations for firms in the UK.
- Fit and proper standard: rules for ensuring that firms and their managers are qualified, trustworthy, and suitable for the roles they hold. It includes SUITABILITY test to make sure firms meet the required standards.
- Part 4A permission: approval that firms need to operate. To get it, firms must prove they can follow these principles and meet the required standards.
- Breaching the principles: raise questions about whether they are still fit to operate in the market.
What are the 12 main principles under the PRIN?
- Integrity
- Skill, care and diligence.
- Management and control.
- Financial prudence.
- Market conduct.
- Customers’ interest.
- Communicating with clients.
- Conflict of interest.
- Customers - relationships of trust.
- Clients’ assets.
- Relations with reregulators.
- Consumer duty.
PRINCIPLES FOR BUSINESSES
Principle 1 - integrity
What does this mean?
Firm must conduct business with integrity and honesty
PRINCIPLES FOR BUSINESSES
Principle 2 - Skill, care and diligence
What does this mean?
- Firm must conduct its business with due skill, care and diligence
- Activities must be carried out responsibly and professionally. Firm should act with competence and thoroughness.
- Includes careful decision making and taking necessary actions to avoid risks.
PRINCIPLES FOR BUSINESSES
Principle 3 - Management and control
What does this mean?
- Firm must take reasonable care to organise and control its affairs responsibility and effectively
- Ensure adequate risk management systems are in place.
PRINCIPLES FOR BUSINESSES
Principle 4 - Financial Prudence
What does this mean?
- Firm must maintain adequate financial resources to support business operations and meet its financial obligations
- It should be able to handle unexpected costs, pay its debts and operate smoothly
PRINCIPLES FOR BUSINESSES
Principle 5 - Market Conduct
What does this mean?
- Firm must observe proper standards of market conduct.
- Follow ethical and legal rules
- Act honestly, fairly, and transparently, making sure it doesn’t deceive or mislead customers, investors, or other market participants.
- The firm must also avoid any actions that could harm the market’s integrity.
PRINCIPLES FOR BUSINESSES
Principle 6 - Customers’ interests
What does this mean?
A firm must pay due regard to the interests of its customers and treat them fairly
PRINCIPLES FOR BUSINESSES
Principle 7 - Communication with clients
What does this mean?
- A firm must pay due regards to the information needs of its clients.
- The firm should be able to communicate information to clients.
- Communication should be clear, fair and not misleading
PRINCIPLES FOR BUSINESSES
Principle 8 - Conflicts of Interest
What does this mean?
A firm should be able to manage conflicts of interest fairly, both between itself and its customers and also between a customer and another client
PRINCIPLES FOR BUSINESSES
Principle 9 - Customers - relationships of trust
What does this mean?
- A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement
In other words, the firm has a responsibility to consider what is best for the customer, especially when the customer is relying on the firm’s expertise and judgement.
PRINCIPLES FOR BUSINESSES
Principle 10 - Clients’ assets
What does this mean?
A firm must arrange adequate protection for clients’ assets when it’s responsible for them
PRINCIPLES FOR BUSINESSES
Principle 11 - Relationship with regulators
What does this mean?
- A firm must deal with a regulated in an open cooperative way
- It should disclose to the appropriate regulator appropriately anything relating to the firm of which the regulator would reasonably expect notice. (Tell them what they need to know)
PRINCIPLES FOR BUSINESSES
Principle 12 - Consumer duty
What does this mean?
- The firm must act to deliver good outcomes for retail customers.
- This principle came into effect from 31st July 2023 for existing products and services.
- Ensures customers receive good outcomes and firms provide evidence that these outcomes are being met.
- This principle applies to “ all firms who determine or have a material influence over a customer outcomes - not just those with a direct customer relationship”
i.e. affects not only firms that deal directly with customers, but also any firm that impacts the customer’s experience or results, even if they don’t have a direct relationship with them.
PRINCIPLES FOR BUSINESSES
Principle 12 - Consumer duty
What are the four outcomes from this principle?
- Product products and services
- Price and value
- Consumer understanding
- Consumer support
PRINCIPLES FOR BUSINESSES
Principle 12 - Consumer duty
Outcome 1: products and services
Explain this further
- Firms must develop and design products which are fit for purpose.
- They need to meet the needs, characteristics of the customers in the identified target market
- This outcome interacts with the PROD source book.
PRINCIPLES FOR BUSINESSES
Principle 12 - Consumer duty
Outcome 2: price and value
Explain this further
- Prices charged by firms for products and services must be fair
- Firms should ensure there is a reasonable relationship between the price paid for a product/ service and the overall benefit a consumer receives from it
PRINCIPLES FOR BUSINESSES
Principle 12 - Consumer duty
Outcome 3: Consumer understanding
Explain this further
- Firms must ensure customers can make informed decisions about their financial services and products.
- They need to consider what information a customer will need in order to make effective decisions.
- Information should also be made available in an understandable way in order for customers to make those decisions.
PRINCIPLES FOR BUSINESSES
Principle 12 - Consumer duty
Outcome 4: Consumer support
Explain this further
Firms must provide a level of support that meets consumers’ needs throughout their relationship with a firm
