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PRIN 3 – Application of the Principles for Businesses

PostedJune 24, 2025
UpdatedJune 24, 2025
ByAndy

1. Chapter Summary

PRIN 3 sets out how the FCA Principles for Businesses (PRIN 2) apply in practice, particularly with respect to their scope and interaction with other legal frameworks, including EU law and the UK’s onshored regulations. This chapter clarifies the territorial and transactional limits of the Principles and explains circumstances where certain Principles may be disapplied or limited, especially in relation to MiFID business. Understanding these applications is vital for firms to know when and how the Principles govern their activities.

2. Applicability

PRIN 3 applies to all FCA-authorised firms subject to the Principles for Businesses. However, it specifically addresses how the Principles operate in relation to MiFID business and the continuing effect of EU law under the European Union (Withdrawal) Act 2018 (EUWA). It clarifies that some Principles or provisions may be disapplied if they conflict with retained EU law or onshored regulations applicable to firms conducting MiFID activities. Territorial scope rules also adjust how broadly the Principles apply.

3. Key Rules and Their Meaning

  • PRIN 3.1.1R – Continuing Application of the Principles This rule ensures that the Principles remain in force and apply unless specifically disapplied or limited by other rules or retained EU law. It confirms that firms must always comply with the Principles as the foundational regulatory standards.
  • PRIN 3.1.6R – Disapplication to Ensure Compatibility with EU Measures This important rule ensures that if any Principle or PRIN 2A guidance conflicts with a relevant EU measure (including MiFID), the conflicting obligation is disapplied—but only to the extent necessary to comply with EU law as retained in UK law post-Brexit. This rule protects firms from being subject to inconsistent or duplicative requirements.
  • PRIN 3.3.1R – Territorial Application Extension This rule expands the territorial reach of the Principles and PRIN 2A for UK MiFID investment firms when other relevant rules or onshored regulations have a wider territorial scope. Essentially, it means that firms’ obligations under the Principles may extend beyond the UK if other rules require it.
  • PRIN 3.4.1G – Practical Effect of Disapplication for MiFID Business Provides guidance explaining that disapplication under PRIN 3.1.6R mainly affects Principles 1, 2, 6, 9, 12, and PRIN 2A concerning eligible counterparty business and transactions on regulated markets or multilateral trading facilities. It clarifies that other Principles (such as 3, 4, 5, 7, 8, 10, and 11) are not subject to these limitations.

4. Interpretation Notes / FCA Expectations

The FCA expects firms to understand where Principles apply fully and where certain Principles or guidance might be limited or disapplied due to EU law or onshored regulation, particularly in MiFID contexts. Firms must carefully assess whether any disapplication applies to their activities and ensure compliance accordingly. The FCA emphasizes that the disapplication is narrow and only applies as strictly necessary, preserving the broad effectiveness of the Principles.

5. Practical Considerations for Firms

Firms should:

  • Conduct thorough legal and regulatory mapping to identify when disapplication of Principles applies.
  • Update policies and compliance frameworks to reflect any carve-outs or territorial extensions.
  • Document assessments of where PRIN 3 rules impact their obligations, particularly for MiFID-related activities.
  • Maintain clear communication with staff and clients about the applicable regulatory standards, especially where MiFID carve-outs apply.
  • Monitor changes in retained EU law or onshored regulations that might affect the application of Principles.

6. Related Handbook References

  • PRIN 2 – The Principles for Businesses (core rules)
  • PRIN 2A – Guidance on the Principles for Businesses
  • COBS – Conduct of Business Sourcebook (client-related rules)
  • SYSC – Senior Management Arrangements, Systems and Controls (governance and controls)
  • MIFIDPRU – Prudential requirements for MiFID investment firms
  • EUWA – European Union (Withdrawal) Act 2018 (legal context for retained EU law)

7. Regulatory Focus / Enforcement Risk (Optional)

The FCA maintains high scrutiny over firms’ understanding and application of the Principles, especially where MiFID business is involved due to potential legal conflicts post-Brexit. Firms failing to properly navigate the disapplication rules may face enforcement actions or regulatory censure for non-compliance or misapplication of regulatory obligations.