Conduct of Business
The FSA and PRA handbooks set out the rules of conduct for credit institutions, insurers, and other financial service providers. They update the former FSA handbooks.
The handbooks are organized into blocks in which there are a number of source books. They are available on the FCA’s and Bank of England’s websites respectively. Certain high-level standards are applicable both to the FCA and PRA. PRA, of its nature, is the prudential regulator for certain larger scale firms whereas the FCA is wider, both regulating sub-PRA firms and being the conduct or doing business rules regulator for the whole industry. Most high-level standards apply to both regulators. They include principles of business (PRIN), threshold conditions (COND), training and competence (TC), fit and proper test for approved persons (FIT), senior management arrangements systems and controls (SYSC), financial stability and market confidence (FIN MAR), statement of principles and code of practice for approved persons (APER), general provisions (GEN), fees manual (FEN).
The above are high-level standards.
Prudential standards are included in the general prudential source book (GEN PRU), prudential source book for banks, building societies, investment firms (BIPRU), prudential source book for insurers (INSPIU), prudential source book for use its firms (UPRU), prudential source book for mortgage and home finance firms and insurance intermediaries (FIN PRU).
The business doing business standards are comprised in the conduct of business (COBS), banking conduct of business (BC OBS), finance and home finance conduct of business (MCOB), insurance conduct of business (ICOBS), market conduct (MAR).
Regulatory procedures are set out in the supervision manual (SUP) and the decision procedure and penalties manual (DEPPP).
Redress is dealt with under the dispute resolution complaints (DISP), coming together with the listing perspectives and the disclosure and transparency rules.
The regulators have published guides on particular areas to assist firms, including the enforcement guide, corrective investment scheme guide, building societies regulatory guide on fair contract terms regulatory guide, fair treatment of customers guide.
There are overall general guides, including a glossary defining terms in the handbooks by way of links, reader’s guide dealing with rules, guidance, evidential provisions. Handbooks notices and policies statements may update the handbook from time to time.
There are different kinds of provisions in the handbooks which are designated by letters. Or indicates a binding rule. E flags in evidential provision which is linked with substantial rules, G indicates guidance which, although not binding, gives examples in substance to issues which arise in the rule.
D&R refer to directions and requirements.
P indicates statement of principles for approved persons mind made under the FSMA and are binding on those persons.
Principles for business set out fundamental obligations. In particular, they require fair and honest conduct. A significant amount of guidance has been drafted by the regulators in relation to the principles to give it substance and effect.
A feature of the regulation is that individuals within organizations may require approval because they carry out so-called controlled functions. This differs and is in addition to the authorization of the firm itself. The basic principle is that the person must be fit and proper to carry out the function.
Conduct of business rules deal largely with day-to-day ongoing dealings with customers. They contain any of the substantive rules, consumer and doing business rules. They must be complied with by both domestically regulated and international firms exercising EU rights to do business within the United Kingdom.
The client asset rules seek to protect the client assets from risk or fraud or negligence by the firm or misuse of the assets. They apply to both investments and clients’ money pending investments.
Generally, clients’ assets must be segregated. The client’s money must be held in the designated client account which must be held and reconciled. Assets held on trust sought and be held by custodian and depositories, trustees who are themselves subject to capitalization and other requirements. There are rules regarding the financial institutions with which money may be held.
Regulated firms holding claim, money or assets must appoint a CAS operational oversight person and make a client money and assets return. Responsibility must be that of an appropriate senior manager or director. The return must be reviewed by a responsible person at regular intervals, check if the return is to be made.
There is a 20 percent limit on intergroup deposits of client money in client bank account.
Client money distribution rules provide for pooling of client’s money in the event of failure or insolvency of the firm. A secondary pooling event involves a failure of a third-party entity with which money is held. This allows for clients who have specified they are not willing to accept that bank’s risk who are excluded from the loss in such an event.
Firms in respect of which custody or client money rules must undertake a CASS Resolution Pack. This is documents and records issued to enable an insolvency practitioner to ascertain and return client assets quickly following terminal failure. They must be capable of being retrieved within 48 hours.
Material inaccuracies contained in CASS resolution platforms must be corrected in a certain time of inaccuracy arising. There is a client asset group which focuses on CASS issues. The purpose is to strengthen confidence in a financial system in terms of client and investment section.
Firm must ensure the clients of adequate reports and services provided, services provided together with details of costs. Essential information must be provided in the durable medium on execution of orders in the course of designated investment business other than managing investments.
In the case of retail clients, notices confirming execution must be sent to service possible or not related in the first business they have to receipt of confirmation from the counterparty. Firms must supply information about the status of clients’ orders on request.
Where an order is executed basis the firm may supply price for each and/or an average price. If business is not confirmed, confirmations need not be supplied if the client has waived the requirement from any case of life policies or investments held in an STF.
Information to include in trade confirmations to a retail client include of the trade, timing, nature of the instrument, investment total price unit price, total commissions, currency exchange related to time limits for a payment, details of counterparty. A firm that manages investments must make periodic statements to the client in a durable medium or to a nominated agent.
Information to be included includes details of the firm, name of the account, statement of the contents of the folio including balances, total fees and charges, compulsion period, or the performance with reinvestment promise benchmark, total dividends, interest received. In the case of a retail client, the periodic statement is required to place portfolio is required monthly. It may be required every three months requested by the client.