Consequences of breaching the principles

The following examples are taken from the FCA’s principles for business document, and help to illustrate how the FCA would assess the application of the principles for business within an organisation.

Breaching a principle makes a firm liable to disciplinary sanctions. In determining whether a principle has been breached, it is necessary to look to the standard of conduct required by the principle in question. Under each of the principles the onus will be on the FCA to show that a firm has been at fault in some way. What constitutes ‘fault’ varies between different principles.

Under Principle 1 (integrity), for example, the FCA would need to demonstrate a lack of integrity in the conduct of a firm’s business.

Under Principle 2 (skill, care and diligence) a firm would be in breach if it was shown to have failed to act with due skill, care and diligence in the conduct of its business.

Similarly, under Principle 3 (management and control) a firm would not be in breach simply because it failed to control or prevent unforeseeable risks; but a breach would occur if the firm had failed to take reasonable care to organise and control its affairs responsibly or effectively.

Principles 6 (customers’ interests), 7 (communications with clients), 8 (conflicts of interest), 9 (customers: relationships of trust) and 10 (clients’ assets) impose requirements on firms expressly in relation to their clients or customers. These requirements depend, in part, on the characteristics of the client or customer concerned. This is because what is ‘due regard’ (in Principles 6 and 7), ‘fairly’ (in Principles 6 and 8), ‘clear, fair and not misleading’ (in Principle 7), ‘reasonable care’ (in Principle 9) or ‘adequate’ (in Principle 10) will, of course, depend on those characteristics. For example, the information needs of a commercial finance broker will be different from those of a car dealer selling a vehicle on finance.

 

What happens when it goes wrong ?

The FCA can fine or sanction the firm, they can stop the firm trading or in severe cases bring criminal proceedings against individuals.