8.1 Principles for Businesses and Conduct of Business Rules

Principles for Businesses and Conduct of Business Rules

The Principles for Businesses are the bedrock of the FCA's conduct regime. They are set out in PRIN 2.1 of the FCA Handbook and apply to every authorised firm, regardless of size or sector. A firm that breaches a Principle is in breach of the Handbook even if no detailed rule has been broken, because the Principles express the overarching standards of behaviour the FCA expects.

Where PRIN Sits in the Handbook

The Handbook is layered. At the top sit the high-level standards (PRIN, SYSC, FIT, APER, etc.), beneath them sit the conduct rules in COBS (Conduct of Business Sourcebook), and beneath those sit more specialist sourcebooks such as MIPRU, IFPRU and BIPRU for prudential matters. PRIN does not replace COBS — it sits above it. A firm can comply with every detailed COBS rule and still breach a Principle, for example by acting without integrity or without due skill, care and diligence. The FCA can take enforcement action for breach of a Principle alone.

The 11 Principles (Plus Consumer Duty)

The original 11 Principles are set out in PRIN 2.1.1R. In July 2023 the FCA added Principle 12 (Consumer Duty) in PRIN 2.1.1R(12), described in section 8.2. The 11 original Principles are summarised below.

Integrity and Skill, Care and Diligence

Principle 1 (Integrity) is the most fundamental. The FCA has fined firms for reckless disregard of customer interests on the basis of integrity failures alone, even where specific rules had not been broken. Principle 2 (Skill, care and diligence) overlaps with the Senior Managers and Certification Regime (SMCR) — individuals can be personally fined under SMCR for lacking the competence their role requires.

Customers' Interests, Communications and Suitability

Principles 6, 7 and 9 work together. Principle 6 underpinned the FCA's Treating Customers Fairly (TCF) initiative and still applies alongside Principle 12. Principle 7 requires that product information, marketing and ongoing communications are clear, fair and not misleading. Principle 9 is the suitability rule — a firm giving advice or taking discretionary decisions must ensure the recommendation is suitable for a customer entitled to rely on its judgement.

Conflicts, Client Assets and Regulator Relations

Principle 8 (Conflicts) requires firms to identify and manage conflicts fairly, disclosing them where they cannot be managed. Principle 10 (Client assets) is enforced through the Client Assets Sourcebook (CASS), which sets segregation and reconciliation rules for client money and safe custody assets. Principle 11 (Relations with regulators) requires timely notification of material issues — for example, significant breaches, complaints patterns, or disciplinary action against SMF-certified staff.

How PRIN Relates to COBS

COBS is the detailed rulebook that operationalises the Principles for retail and wholesale conduct. Where COBS sets a specific rule — for example, the requirement to provide a cost and charges disclosure (COBS 4.6A) or a suitability report (COBS 9A.4) — a breach of that rule is also a breach of Principle 6 or 9. The reverse is not always true. The FCA can show a firm breached a Principle even where the conduct did not violate a specific rule, by arguing the behaviour fell short of integrity, fairness or due skill. This is the regulatory force of the Principles: they are a backstop that catches conduct the rule drafter did not anticipate.

Enforcement of the Principles

The FCA's enforcement powers are set out in DEPP (the Decision Procedure and Penalties manual). For a breach of a Principle the FCA may impose an unlimited financial penalty, issue a public censure, vary or cancel permissions, and approve individual prohibitions under SMCR. The FCA considers aggravating and mitigating factors — seriousness of the breach, harm caused, cooperation, senior management involvement and previous disciplinary record. Where a Principle 1 (Integrity) breach is found, penalties tend to be materially higher because integrity is treated as fundamental.

The Consumer Duty Layer

From 31 July 2023, Principle 12 (Consumer Duty) was added to PRIN. The Duty is given detailed form in PRIN 2A and applies to new and existing products; from 31 July 2024 it extended to closed products. Principle 12 requires firms to act to deliver good outcomes for retail customers. Principles 6 and 7 continue to apply but, where the Consumer Duty is in scope, it sets a higher standard. Section 8.2 explains the Duty in more detail.