The financial services industry is one of the most heavily regulated industries in the UK. This is because of the amount of money that is involved and the potential for harm to customers if the rules are not followed. As such, it is essential that employees in this sector understand the conduct rules that they must adhere to.
The Financial Conduct Authority (FCA) is the regulator responsible for overseeing and regulating the conduct of firms and individuals in the financial services industry. The FCA has powers to investigate firms, impose fines, and take enforcement action if necessary. It also provides guidance on how firms should conduct their business. It has a set of rules known as the ‘Conduct Rules’ which all employees must follow. These rules are designed to ensure that customers are treated fairly and that their interests are protected. They also ensure that the industry remains stable and they help to promote healthy competition. The principles in these rules apply to both an organisation’s regulated and unregulated financial services activities and aim to ensure that a minimum standard of professional behaviour is consistently followed throughout organisations.
The Conduct Rules lay out clearly how employees and firms should manage conflicts of interest, and how they should handle customer complaints. They also cover how firms should manage their finances, how they should protect customer data, and how they should ensure that their staff are properly trained and qualified. They are divided into three main categories:
- The Principles for Businesses,
- The Client Assets Sourcebook (CASS),
- The Senior Managers and Certification Regime (SM&CR).
The Principles for Businesses set out the basic standards of conduct that firms must adhere to, such as treating customers fairly, managing conflicts of interest, and providing clear information. They were developed by the World Bank Group and International Finance Corporation (IFC) to provide guidance on how businesses should conduct themselves in order to promote sustainable economic development. The Principles cover topics such as human rights, labour standards, environmental protection, anti-corruption, and transparency.
The Client Assets Sourcebook (CASS) is a set of rules and guidance issued by the FCA in the UK. It sets out the requirements for firms to protect client assets, including cash, investments and other financial instruments. CASS also covers how firms should handle client money, including segregation of client funds from firm funds to ensure they are not misused, and record-keeping requirements.
The Senior Managers and Certification Regime (SM&CR) is a set of rules introduced by the FCA to improve standards of conduct across the banking sector. It replaces the Approved Persons Regime and applies to all firms authorised by the FCA, including banks, building societies, credit unions and investment firms. The SM&CR sets out clear responsibilities for senior managers, requires firms to certify certain staff as fit and proper to perform their roles, and introduces a new set of conduct rules for all staff. These rules can be presented in two separate tiers, relating to the level of employee they apply to:
First Tier – Individual Conduct Rules
- You must act with integrity.
- You must act with due care, skill and diligence.
- You must be open and cooperative with the FCA, the Prudential Regulation Authority (PRA) and other regulators.
- You must pay due regard to the interests of customers and treat them fairly.
- You must observe proper standards of market conduct.
Second Tier – Senior Manager Conduct Rules
- You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively.
- You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system.
- You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.
- You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice.
It is vitally important that all employees understand the Conduct Rules and to ensure that they are adhering to them. Failing to do so could result in disciplinary action including fines, suspension or dismissal or even criminal prosecution. The FCA may also take enforcement action against firms and individuals for breaches of its rules. This could include a public censure, a fine or other sanctions such as restrictions on activities or a ban from the industry through the revocation of their licence
It is clear then that firms should provide training and guidance to ensure that employees understand the Conduct Rules. This should include an explanation of the rules, examples of how they should be applied, and advice on how to deal with any potential breaches. To facilitate clear understanding, the FCA provides a range of training and guidance to ensure that employees understand and follow the conduct rules.
This includes:
- The FCA Handbook, which contains detailed information on the rules and regulations governing financial services firms.
- The FCA’s Conduct Rules, which set out the standards of behaviour expected from firms and their employees.
- The Senior Managers & Certification Regime (SM&CR), which sets out the responsibilities of senior managers in relation to conduct risk management.
- The FCA’s Financial Crime Guide, which provides guidance on how to identify and prevent financial crime.
- The FCA’s Market Abuse Regulation (MAR), which sets out the rules for preventing market abuse in financial markets.
- The FCA’s Training & Competence Sourcebook, which outlines the requirements for firms to ensure that their staff are competent to carry out their roles effectively.
- The FCA’s Consumer Credit Sourcebook, which sets out the rules for firms providing consumer credit services.
- The FCA’s Regulatory Guides, which provide detailed guidance on specific topics such as anti-money laundering and data protection.
In summary, the Conduct Rules are an essential part of the financial services industry and all employees must understand and adhere to them. Firms should provide training and guidance to ensure that their staff are aware of the rules and are able to comply with them. Failure to do so could result in serious consequences for both the firm and its employees.
If you want to learn more about this, we have a self-paced, e-learning module covering Conduct Rules. Find it here: Conduct Rules for All Staff – LGCA | Build Skills with Online Courses and Certificates by Industry Experts