PRIN 1 – Application and purpose
This section explains who must follow the FCA’s fundamental Principles and why they exist. The Principles apply to all regulated firms and certain payment/electronic money providers, serving as the basic standards of conduct expected in financial services. They form part of the “fit and proper” requirements for authorization and have worldwide application in certain circumstances. Breaking these Principles can result in disciplinary action, regulatory intervention, and questions about whether a firm remains suitable to operate.
PRIN 1.1.1 – Who Must Follow These Rules
The Principles (found in PRIN 2) apply to every regulated firm, though some modifications exist for firms conducting MiFID business and Annex II benchmark administrators. The detailed rules about who, what, and where these Principles apply can be found in PRIN 3.
Additionally, certain payment service providers and electronic money issuers who aren’t technically classified as “firms” must also follow these Principles. When we refer to “firms” in PRIN 2, this includes these payment and electronic money providers as well.
PRIN 1.1.2 – Why These Rules Exist
The Principles serve as a fundamental statement of what we expect from regulated firms and other entities covered by our regulatory system. These rules get their legal authority from the FCA’s rule-making powers under the Financial Services and Markets Act, including powers applied through the Payment Services Regulations and Electronic Money Regulations. They reflect the FCA’s statutory objectives for protecting consumers and maintaining market integrity.
PRIN 1.1.4 – Connection to “Fit and Proper” Standards
The Principles essentially express what it means to be “fit and proper” as required under threshold condition 5 (Suitability), though they don’t derive their authority from that standard alone.
When applying for regulatory permission, firms must demonstrate they’re ready, willing, and organized to follow these Principles. Breaking these Principles may raise questions about whether a firm with existing permission is still fit and proper to operate.
For payment service providers and electronic money issuers, the relevant “fit and proper” standards are those set out in their respective regulations.
PRIN 1.1.5 – How Group Activities Affect Compliance
Principles 3 (Management and control), 4 (Financial prudence), and 11 (Relations with regulators – specifically the disclosure requirements) take into account what other companies in your group are doing.
This doesn’t mean that problems with another group member automatically make you non-compliant. Rather, we’ll consider the potential impact of group activities when assessing whether your own risk management systems and resources are adequate.
PRIN 1.1.6 – Standards for International Operations
When firms operate outside the UK, Principles 1 (Integrity), 2 (Skill, care and diligence), and 3 (Management and control) apply worldwide in prudential contexts. Principle 5 (Market conduct) applies to worldwide activities that might damage confidence in the UK financial system.
When considering regulatory action for overseas activities, the FCA will take into account the standards expected in the market where you’re operating.
Principle 11 (Relations with regulators) applies to worldwide activities, but when considering action related to cooperation with overseas regulators, the FCA will consider the extent and limits of your duties to that regulator.
(Note: Principle 4 (Financial prudence) also applies to worldwide activities.)
PRIN 1.1.6A – Additional Guidance for MiFID Business
PRIN 4 provides specific guidance on how the Principles apply to MiFID business activities.
PRIN 1.1.7 – What Happens When You Break These Rules
Breaking a Principle can result in disciplinary sanctions. To prove a breach, the FCA must show that you were at fault in some way – but what constitutes “fault” varies between different Principles:
- Under Principle 1 (Integrity): The FCA must demonstrate a lack of integrity in how you conduct business
- Under Principle 2 (Skill, care and diligence): You’d be in breach if shown to have failed to act with due skill, care and diligence
- Under Principle 3 (Management and control): You wouldn’t breach simply by failing to control unforeseeable risks, but you would breach if you failed to take reasonable care to organize and control your affairs responsibly and effectively
PRIN 1.1.8 – Other FCA Powers Related to the Principles
The Principles are relevant to the FCA’s powers to:
- Gather information
- Vary your regulatory permissions or registrations
- Investigate and intervene
- Apply to court for injunctions or restitution orders
- Require you to make restitution to customers
However, the Principles don’t give private individuals the right to sue you for damages (see PRIN 3.4.4 R).
PRIN 1.1.9 – How These Principles Work with Other Rules
While other rules and guidance in the FCA Handbook explain how the Principles apply to specific situations, the Principles are designed as general regulatory requirements that apply even in new or unforeseen circumstances.
Therefore, you shouldn’t view the FCA’s other rules, guidance, or onshored regulations as covering everything the Principles require – the Principles themselves may have broader implications.