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EG 2.8 1Enforcement and the FCA's Principles for Business (‘the Principles’)

EG 2.8.1

1The FCA's approach to regulation involves a combination of high-level principles and detailed rules and guidance.

EG 2.8.2

1The FCA will, in appropriate cases, take enforcement action on the basis of the Principles alone (see also DEPP 6.2.14 G). This will have the benefit of providing further clear examples of how the Principles work in practice.

EG 2.8.3

1The FCA wishes to encourage firms to exercise judgement about, and take responsibility for, what the Principles mean for them in terms of how they conduct their business. But we also recognise the importance of an environment in which firms understand what is expected of them. So we have indicated that firms must be able reasonably to predict, at the time of the action concerned, whether the conduct would breach the Principles. This has sometimes been described as the “reasonable predictability test” or “condition of predictability”, but it would be wrong to think of this as a legal test to be met in deciding whether there has been a breach of FCA rules. Rather, our intention has been to acknowledge that firms may comply with the Principles in different ways; and to indicate that the FCA will not take enforcement action unless it was possible to determine at the time that the relevant conduct fell short of our requirements.

EG 2.8.4

1To determine whether there has been a failure to comply with a Principle, the standards we will apply are those required by the Principles at the time the conduct took place. The FCA will not apply later, higher standards to behaviour when deciding whether to take enforcement action for a breach of the Principles. Importantly, however, where conduct falls below expected standards the FCA considers that it is legitimate for consequences to follow, even if the conduct is widespread within the industry or the Principle is expressed in general terms.