United KingdomThe Consumer Duty: Principle 12 and the cross-cutting rules and outcome rules for retail customers
FCA Handbook, PRIN 2A and Principle 12
In force since .
An AI sector rules rule binding private bodies.
- Criminal exposure
- No
- Enforcement body
- Financial Conduct Authority
- Instrument type
- a regulation made under an act
- Obligation class
- Governance
- Audit expectation
- periodic
- Who audits it
- Self
As of .
What it requires
- It reaches you if you are a firm carrying on retail market business, meaning the regulated activities and ancillary activities, payment services and issuing of electronic money of a firm in a distribution chain that involves a retail customer, or if you communicate or approve a financial promotion addressed to or likely to be received by a retail customer, to the extent you are responsible for determining or materially influencing retail customer outcomes: act to deliver good outcomes for retail customers (Principle 12, PRIN 2.1.1R, and PRIN 3.2.6R to 3.2.7R).
- Act in good faith towards retail customers (PRIN 2A.2.1R); the standard of conduct is set out in PRIN 2A.2.2R and includes fair and open dealing and acting consistently with the reasonable expectations of retail customers.
- Avoid causing foreseeable harm to retail customers, whether by act or omission, in your direct relationship with a retail customer or through your role in the distribution chain (PRIN 2A.2.8R and 2A.2.9R).
- Enable and support retail customers to pursue their financial objectives (PRIN 2A.2.14R).
- If you identify, through complaints, your internal monitoring or any other source, that retail customers have suffered foreseeable harm as a result of your acts or omissions, act in good faith and take appropriate action to rectify the situation, including providing redress where appropriate (PRIN 2A.2.5R).
- Products and services: as a manufacturer, maintain, operate and review a process for approving a product, and significant adaptations of it, before it is marketed or distributed to retail customers, and test products appropriately (PRIN 2A.3.2R and 2A.3.9R); as a distributor, maintain, operate and review distribution arrangements that avoid causing, and where that is not practical mitigate, foreseeable harm to retail customers (PRIN 2A.3.14R).
- Price and value: as a manufacturer, ensure your products provide fair value to retail customers in the target market and carry out and regularly review a value assessment (PRIN 2A.4.2R); as a distributor, do not distribute a product unless your distribution arrangements are consistent with the product providing fair value (PRIN 2A.4.16R).
- Consumer understanding: support retail customer understanding so that your communications meet the information needs of retail customers, are likely to be understood by them and equip them to make decisions that are effective, timely and properly informed, and communicate information in a way which is clear, fair and not misleading (PRIN 2A.5.3R); where appropriate, test communications before use and regularly monitor their impact (PRIN 2A.5.10R).
- Consumer support: design and deliver support to retail customers that meets their needs, including those with characteristics of vulnerability, lets them use their product as reasonably anticipated, includes appropriate friction in customer journeys, and does not put unreasonable barriers in their way during the product lifecycle (PRIN 2A.6.2R).
- Ensure the Consumer Duty is reflected in your strategies, governance, leadership and people policies, and that retail customer outcomes are a central focus of your risk control arrangements under SYSC and of your internal audit function (PRIN 2A.8.1R).
- Regularly monitor the outcomes retail customers receive from your products, your communications and your customer support, in a way that lets you determine whether you are complying with Principle 12 and PRIN 2A.2 and whether any group of retail customers is experiencing different outcomes from another group of the same product (PRIN 2A.9.8R to 2A.9.10R).
- Prepare a report for your governing body on the results of that monitoring and any actions required, and at least annually have the governing body review and approve it, confirm whether it is satisfied that you are complying with the Consumer Duty, and assess whether your future business strategy is consistent with it (PRIN 2A.8.3R and 2A.8.4R).
- Where monitoring shows that retail customers are not receiving the outcomes listed in PRIN 2A.9.9R, that any group is receiving worse outcomes than another for the same product, or that you are not complying with Principle 12 and the cross-cutting obligations, take appropriate action to address the situation (PRIN 2A.9.12R).
What this law does
Principle 12, the Consumer Duty, requires a firm to act to deliver good outcomes for retail customers. The Consumer Duty applies to a firm's retail market business, including in respect of existing products and closed products.
The Consumer Duty Instrument 2022 defined retail market business as the regulated activities and ancillary activities, payment services, issuing electronic money and connected activities of a firm in a distribution chain which involves a retail customer, but not including listed activities. The Consumer Duty applies to the communication or approval of a financial promotion only if the promotion is addressed to, or disseminated in such a way that it is likely to be received by, a retail customer.
Where the Consumer Duty applies to a firm operating in a distribution chain, it applies only to the extent that the firm is responsible, in the course of carrying out those activities, for determining or materially influencing retail customer outcomes. The Consumer Duty does not apply to activities to the extent that they are not included in a rule which sets out the scope of protections offered to retail customers by COBS, ICOBS, MCOB, BCOBS, CMCOB, FPCOB, PROD or CONC.
Principles 6 and 7 do not apply to a firm's activities to the extent that the Consumer Duty applies. The Consumer Duty Instrument 2022 comes into force on . Except to the extent specified in the transitional provisions for closed product reviews and for sales of closed product books, Principle 12 and PRIN 2A apply to a closed product only from .
A contravention of the rules in PRIN does not give rise to a right of action by a private person under section 138D of the Financial Services and Markets Act 2000. If the appropriate regulator considers that an authorised person has contravened a relevant requirement imposed on the person, section 206 of the Financial Services and Markets Act 2000 lets it impose a penalty of such amount as it considers appropriate.
Guidance on this law
How the bodies that enforce this law read it. Guidance binds nobody by itself, so LexLint never raises a finding from it; the duty is this law's.
- Artificial Intelligence (AI) update, the Financial Conduct Authority
When LexLint raises it
When your app profile says your app provides financial services.