PRIN 2 – The Principles
This section sets out the fundamental Principles that all regulated firms must follow in their business operations. The principles establish the core standards expected of financial services firms, with Principle 12 (Consumer Duty) being the newest addition requiring firms to actively deliver good outcomes for retail customers.
PRIN 2.1.1 – The Core Principles
Principle 1: Integrity
“A firm must conduct its business with integrity.”
In Plain English: You must run your business honestly and ethically. This means being truthful, acting in good faith, and maintaining moral standards in all your business dealings.
Principle 2: Skill, Care and Diligence
“A firm must conduct its business with due skill, care and diligence.”
In Plain English: You must operate your business competently and professionally. This means having the right expertise, paying proper attention to what you’re doing, and being thorough in your work.
Principle 3: Management and Control
“A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.”
In Plain English: You must have proper systems and controls in place to run your business effectively. This includes having clear governance structures, effective oversight of your operations, and robust systems to identify and manage risks.
Principle 4: Financial Prudence
“A firm must maintain adequate financial resources.”
In Plain English: You must have enough money and financial reserves to run your business safely. This means maintaining sufficient capital, liquidity, and other financial resources to meet your obligations and manage potential losses.
Principle 5: Market Conduct
“A firm must observe proper standards of market conduct.”
In Plain English: You must behave appropriately in financial markets. This means following accepted standards of behavior, not engaging in market manipulation, and conducting yourself in a way that maintains market integrity.
Principle 6: Customers’ Interests
“A firm must pay due regard to the interests of its customers and treat them fairly.”
In Plain English: You must consider what’s best for your customers and treat them fairly. This doesn’t mean putting customer interests above everything else, but you must give proper consideration to their needs and circumstances when making decisions that affect them.
Principle 7: Communications with Clients
“A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.”
In Plain English: You must think about what information your clients need and communicate with them clearly and honestly. Your communications should be easy to understand, balanced, and not designed to mislead or confuse.
Principle 8: Conflicts of Interest
“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.”
In Plain English: When your interests conflict with a customer’s interests, or when different customers’ interests conflict with each other, you must handle these situations fairly. This means having proper procedures to identify conflicts and manage them appropriately.
Principle 9: Customers: Relationships of Trust
“A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.”
In Plain English: When customers trust you to make decisions for them or give them advice, you must take proper care to ensure what you recommend or decide is suitable for their individual circumstances and needs.
Principle 10: Clients’ Assets
“A firm must arrange adequate protection for clients’ assets when it is responsible for them.”
In Plain English: When you’re looking after clients’ money or investments, you must put proper safeguards in place to protect them. This includes segregation arrangements, insurance, and other protective measures.
Principle 11: Relations with Regulators
“A firm must deal with its regulators in an open and cooperative way, and must disclose to the FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice.”
In Plain English: You must be open and helpful when dealing with the FCA and other regulators. This means being transparent, providing information when requested, and proactively telling regulators about significant issues that they should know about.
Principle 12: Consumer Duty (Added 2022)
“A firm must act to deliver good outcomes for retail customers.”
In Plain English: You must actively work to ensure that retail customers (individual consumers) get good results from your products and services. This goes beyond just avoiding harm – you must take positive steps to help customers achieve their financial objectives.