Content Options:

Content Options

View Options:


You are viewing the version of the document as on 2024-04-02.

PRIN 2A.1 Application and purpose

Application

PRIN 2A.1.1 R

1References in PRIN to the obligations on firms under Principle 12 include the obligations imposed by rules in PRIN 2A.

PRIN 2A.1.2 R

1References in PRIN to obligations imposed on firms under PRIN 2A include the obligation imposed by Principle 12.

PRIN 2A.1.3 G

1The application of Principle 12 and PRIN 2A2 is set out in PRIN 3, including PRIN 3.2.6R to PRIN 3.2.12G. Principle 12 applies in relation to a firm’s retail market business or where the firm communicates or approves financial promotions which are addressed to, or disseminated in such a way that they are likely to be received by, a retail customer2. To the extent that Principle 12 applies, Principles 6 and 7 do not apply.

PRIN 2A.1.4 G

1The definition of a product for the purposes of Principle 12 and PRIN 2A includes both products and services.

PRIN 2A.1.5 G

1The definition of a retail customer for the purposes of Principle 12 and PRIN 2A includes a prospective customer.

PRIN 2A.1.6 G

1The rules in Principle 12 and PRIN 2A are to be interpreted in accordance with the standard that could reasonably be expected of a prudent firm carrying on the same activity in relation to the same product and taking appropriate account of the needs and characteristics of retail customers as set out in PRIN 2A.7.1R. Further guidance about what can reasonably be expected and the needs and characteristics of retail customers is set out at PRIN 2A.7.2G to 2A.7.5G.

PRIN 2A.1.7 R

1References in this chapter (including those within Glossary definitions used in this chapter) to regulated activities include payment services and issuing electronic money (whether or not the activity of issuing electronic money specified in article 9B of the Regulated Activities Order); and unless otherwise stated are to be taken to include activities connected to the provision of payment services and to the issuing of electronic money (whether or not the activity of issuing electronic money specified in article 9B of the Regulated Activities Order).

Purpose

PRIN 2A.1.8 G

1 Principle 12 reflects a general expectation by the FCA that firms should conduct their business to a standard which ensures an appropriate level of protection for retail customers.

PRIN 2A.1.9 G

1While recognising the general principle that consumers should take responsibility for their decisions, having regard to the other factors set out in s.1C of the Act, it is appropriate to require a high level of protection for retail customers for reasons including:

  1. (1)

    that they typically face a weak bargaining position in their relationships with firms;

  2. (2)

    that they are susceptible to cognitive and behavioural biases;

  3. (3)

    that they may lack experience or expertise in relation to products offered through retail market business; and

  4. (4)

    that there are frequently information asymmetries involved in retail market business.

PRIN 2A.1.10 G
  1. (1)

    1The cross-cutting obligations at PRIN 2A.2 set out the overarching conduct which firms must demonstrate when they act to deliver good outcomes for retail customers.

  2. (2)

    The main elements of firms’ conduct obligations under Principle 12 and PRIN 2A are set out in PRIN 2A.3 to PRIN 2A.11.

  3. (3)

    The retail customer outcome rules and guidance at PRIN 2A.3 to PRIN 2A.6 set out firms’ key obligations in relation to product governance, price and value, consumer understanding and supporting consumers.

  4. (4)

    There are particular provisions concerning closed products and existing products distributed2 to retail customers before 31 July 2023 in PRIN 2A.3 and PRIN 2A.4.

PRIN 2A.1.11 G

1 Principle 12 does not change the nature of a firm’s relationship with any given retail customer. In particular, it does not create a fiduciary relationship where one would not otherwise exist nor require a firm to provide advice or carry out any other regulated activity where it would not otherwise have done so.

PRIN 2A.1.12 G

1The FCA has issued guidance on the Consumer Duty in FG22/5, which firms should read alongside Principle 12 and PRIN 2A as a guide to the FCA’s view as to how Principle 12 and PRIN 2A might be complied with.

Guidance on responsibilities of firms in a product’s distribution chain

PRIN 2A.1.13 G
  1. (1)

    1Principle 12 imposes obligations on firms towards retail customers of products irrespective of whether the customer is a client of the firm.

  2. (2)

    This extended application aims to ensure the effectiveness of obligations under Principle 12 which may properly relate to activities which determine or materially influence retail customer outcomes carried out by a firm with whom the retail customer is not in a client relationship.

  3. (3)

    A firm’s role in the distribution chain may mean it is unable to determine or materially influence retail customer outcomes in connection with the product. If so, the firm may not be subject to any obligation under Principle 12.

PRIN 2A.1.14 G

1Obligations on firms in the distribution chain of a product must be interpreted reasonably, in a manner that reflects the firm’s role in that distribution chain and the degree to which it can determine or materially influence retail customer outcomes.

PRIN 2A.1.15 G

1The extent of a firm’s responsibilities under Principle 12 in any one case will turn on the substance of the firm’s role in the arrangements relating to the product. A firm which determines or has a material influence over retail customer outcomes is accountable notwithstanding that the retail customer may not be its client due to the indirect nature of their relationship.

PRIN 2A.1.15A G

2For example, where a firm’s sole activity subject to obligations under Principle 12 is communicating or approving a financial promotion, the rules and guidance in PRIN 2A.3 (products and services), PRIN 2A.4 (price and value), PRIN 2A.6 (customer support) and PRIN 2A.11 (sale and purchase of product books) are likely to have limited relevance.

Relevance of guidance about Principles 6 and 7

PRIN 2A.1.16 G

1Given the high-level nature and breadth of application of the Principles, guidance about a Principle cannot exhaustively cover its implications (see also PRIN 1.1.9G).

PRIN 2A.1.17 G
  1. (1)

    1In general terms, Principle 12 and PRIN 2A impose 2 a higher and more exacting standard of conduct in relation to a firm’s activities2 relative to what Principles 6 or 7 would have otherwise required. Principle 12 and PRIN 2A also have2 a broader application in relation to a firm’s activities2 relative to Principles 6 and 7, with a greater focus on consumer protection outcomes for retail customers, including where those retail customers do not stand in a client relationship with that firm in the distribution chain.

  2. (2)

    While existing, formal guidance on Principles 6 and 7 will remain relevant to firms in considering their obligations under Principle 12, firms should also take due account of the inherent limits of such guidance in light of the factors in (1). See also PRIN 2A.1.3G.

  3. (3)

    To the extent that a firm is not acting in accordance with existing guidance on Principles 6 and 7 and the behaviour would amount to a breach of Principle 6 or 7 in the event that they had continued to apply, the behaviour is likely to amount to a breach of Principle 12.

  4. (4)

    Where a firm is acting in accordance with guidance on Principles 6 and 7 that should not be relied on alone in considering how to comply with Principle 12. Firms also need to consider all their obligations not only under the Principles, but under any other applicable law, including other FCA rules such as those expanding upon Principle 12 as set out in PRIN 2A.

PRIN 2A.1.18 G

1The effect of PRIN 3.2.10R is that the application of Principles 6 and 7 is unchanged with respect to a firm’s activities insofar as they are not subject to Principle 12.

PRIN 2A.2 Cross-cutting obligations

Act in good faith

PRIN 2A.2.1 R

1A firm must act in good faith towards retail customers.

PRIN 2A.2.2 R

1Acting in good faith is a standard of conduct characterised by honesty, fair and open dealing and acting consistently with the reasonable expectations of retail customers.

PRIN 2A.2.3 G

1Examples of where a firm is not acting in good faith would include:

  1. (a)

    failing to take account of retail customers’ interests, for example in the way it designs a product or presents information;

  2. (b)

    seeking inappropriately to manipulate or exploit retail customers, for example by manipulating or exploiting their emotions or behavioural biases to mis-lead or create a demand for a product;

  3. (c)

    taking advantage of a retail customer or their circumstances, for example any characteristics of vulnerability, in a manner which is likely to cause detriment;

  4. (d)

    carrying out the same activity to a higher standard or more quickly when it benefits the firm than when it benefits the retail customer, without objective justification.

PRIN 2A.2.4 G

1Acting in good faith does not mean a firm is prevented from pursuing legitimate commercial interests or seeking a profit, provided it does so in a manner which is compliant with Principle 12 and PRIN 2A. Acting in good faith does not require a firm to act in a fiduciary capacity where it was not already obliged to do so.

PRIN 2A.2.5 R

1If a firm identifies through complaints, its internal monitoring or from any other source, that retail customers have suffered foreseeable harm as a result of acts or omissions by the firm, it must act in good faith and take appropriate action to rectify the situation, including providing redress where appropriate.

[Note: PRIN 2A.10 contains rules which are relevant when a firm is considering what “appropriate action” it must take.]

PRIN 2A.2.6 R

1 PRIN 2A.2.5 does not apply where the harm identified was caused by risks inherent in a product, provided the firm reasonably believed that retail customers or the relevant retail customer (as the context requires) understood and accepted those risks.

PRIN 2A.2.7 G

1Whether such a belief is reasonable will depend (among other things) on the nature of the product offered by the firm; the adequacy of the firm’s product design, communications and customer services; the needs and characteristics of retail customers or the relevant retail customer (as the context requires); and the extent to which the firm is compliant with applicable law in relation to the sale of that product, including the rules set out in PRIN 2A.

Avoid causing foreseeable harm

PRIN 2A.2.8 R

1A firm must avoid causing foreseeable harm to retail customers.

PRIN 2A.2.9 R

1Foreseeable harm may be caused by both act and omission, in a firm’s direct relationship with a retail customer or through its role in the distribution chain even where another firm in that chain also contributes to the harm.

PRIN 2A.2.10 G

1Avoiding causing foreseeable harm to retail customers includes:

  1. (1)

    ensuring all aspects of the design, terms, marketing, sale of and support for its products avoid causing foreseeable harm;

  2. (2)

    ensuring that no aspect of its business involves unfairly exploiting behavioural biases displayed or characteristics of vulnerability held by retail customers;

  3. (3)

    identifying the potential for harm that might arise if it withdraws a product, its products change or its understanding about the impact on retail customers changes;

  4. (4)

    responding to emerging trends that identify new sources of harm, including FCA supervisory action and/or communications; and

  5. (5)

    taking appropriate action to mitigate the risk of actual or foreseeable harm, including for example by:

    1. (i)

      updating or otherwise amending the design of the product or distribution strategy;

    2. (ii)

      updating information about a product or updating investment advice;

    3. (iii)

      ensuring that retail customers do not face unreasonable barriers (including unreasonable additional costs), for example when they want to switch products or providers or to complain;

    4. (iv)

      allowing time and support for retail customers to find suitable alternatives where a product is withdrawn.

PRIN 2A.2.11 G

1A firm with an ongoing relationship with a retail customer in relation to a product would need to act to avoid causing foreseeable harm to that customer throughout the lifecycle of that product.

PRIN 2A.2.12 G

1A firm which is involved with the provision of a product at a point in time and without an ongoing relationship with the retail customer does not need to act to avoid causing harm which only later becomes foreseeable.

PRIN 2A.2.13 G

1Avoiding causing foreseeable harm to retail customers does not mean a firm has a responsibility to prevent all harm. For example:

  1. (1)

    a product may have inherent risks which retail customers accept by selecting that product. Where a firm reasonably believes a retail customer understands and accepts such risks, it will not breach the rule if it fails to prevent them;

  2. (2)

    whether such a belief is reasonable will depend (among other things) on the nature of the product offered by the firm, the adequacy of the firm’s product design, communications and customer services; and the extent to which it is compliant with applicable law in relation to the sale of that product, including the rules set out in PRIN 2A; and

  3. (3)

    examples of risks which are inherent to a product include that a mortgage carries a risk of repossession and most investments carry a risk that the market may move resulting in capital loss.

Enable and support retail customers

PRIN 2A.2.14 R

1A firm must enable and support retail customers to pursue their financial objectives.

PRIN 2A.2.15 G

1The conclusions a firm can properly reach about the financial objectives of retail customers will depend on the type of product it provides.

PRIN 2A.2.16 G

1A firm which provides an execution-only service or a non-advised service can assume (unless it knows or could reasonably be expected to have known otherwise) that the financial objectives of retail customers are to purchase, use and enjoy the full benefits of the product in question.

PRIN 2A.2.17 G

1A firm which provides advisory or discretionary services is entitled to rely on the objectives that retail customers have disclosed unless it knows or could reasonably be expected to know that information disclosed is manifestly out of date, inaccurate or incomplete.

PRIN 2A.2.18 G

1Information a firm must obtain under a provision of law (including, but not limited to, information required by COBS 9.2.1R, COBS 9A.2.1R, COBS 10.2.1R, COBS 10A.2.1R, ICOBS 5.2.2R, MCOB 4.7A.6 R, MCOB 11.6.2R and CONC 5.2A.5R) is relevant to whether a firm knew or could reasonably be expected to know that a customer has different financial objectives for the purposes of PRIN 2A.2.16G and PRIN 2A.2.17G.

PRIN 2A.2.19 G

1To the extent that a firm becomes aware or should reasonably have become aware of a specific financial objective sought by a retail customer in connection with a product, it should consider how to support progress towards achieving that objective in its interactions with that retail customer.

PRIN 2A.2.20 G

1Enabling and supporting retail customers to pursue their financial objectives includes acting to empower retail customers to make good choices in their interests, including by:

  1. (1)

    ensuring all aspects of the design, terms, marketing, sale of and support for its products meet and not frustrate the objectives and interests of retail customers;

  2. (2)

    making sure retail customers have the information and support they need, when they need it, to make and act on informed decisions;

  3. (3)

    enabling retail customers to enjoy the use of their product and to switch or exit the product where they want to without unreasonable barriers or delay; and

  4. (4)

    taking account of retail customers’ behavioural biases and the impact of characteristics of vulnerability in all aspects of customer interaction.

PRIN 2A.2.21 G

1Enabling and supporting retail customers to pursue their financial objectives may include the proactive provision of information or offer of support when a firm declines to provide a particular product to a retail customer. In particular:

  1. (1)

    firms should consider in light of the financial objectives of that retail customer whether it would be appropriate to provide information to enable and support that retail customer to achieve those objectives, and where appropriate should provide it; and

  2. (2)

    they should take reasonable steps to ensure any information they provide to a retail customer which is produced by an external third party such as a money advice charity, to which the retail customer is signposted, is independent and reliable.

PRIN 2A.2.22 G

1Enabling and supporting retail customers to pursue their financial objectives does not mean that a firm is expected to go beyond what a prudent firm carrying out the same activity in relation to the same product, taking appropriate account of the needs and characteristics of retail customers, including in particular as set out in PRIN 2A.7.4G to PRIN 2A.7.5G, would do. For example, it does not require firms to go beyond what is reasonably expected by retail customers in the delivery of the product.

Guidance on the cross-cutting obligations

PRIN 2A.2.23 G
  1. (1)

    1The obligations in PRIN 2A.2 apply at all stages of the customer journey and during the whole lifecycle of a product. Firms will therefore need to keep products under regular review and consider the impact of any changes they make to those products.

  2. (2)

    In applying the obligations in PRIN 2A.2, firms should note that each of the cross-cutting obligations in this section requires firms to act both proactively and reactively, as the context requires.

PRIN 2A.2.24 G

1The obligations in PRIN 2A.2 apply both at a target market and (where context requires) at an individual customer level, for example:

  1. (1)

    Where a firm interacts with an individual retail customer or is providing a bespoke service the obligations in PRIN 2A.2 apply to those interactions and that service;

  2. (2)

    Where a firm is not interacting with an individual retail customer, for example in the design of a product, when making pricing decisions or designing communications, the obligations in PRIN 2A.2 apply at the level of that target market.

PRIN 2A.2.25 G

1Each of the cross-cutting obligations in this section requires firms to understand and take account of cognitive and behavioural biases and the impact of characteristics of vulnerability and/or lack of knowledge on retail customers’ needs and decisions.

Interaction between Principle 12 and the cross-cutting obligations

PRIN 2A.2.26 R

1The cross-cutting obligations (the rules in PRIN 2A.2) exhaust what is required under Principle 12.

PRIN 2A.2.27 G

1The cross-cutting obligations define how firms should act to deliver good outcomes for retail customers.

Interaction between the cross-cutting obligations and the outcomes rules

PRIN 2A.2.28 G

1The outcomes rules at PRIN 2A.3 to PRIN 2A.6 help to define what is required by Principle 12 and PRIN 2A.2 but do not exhaust those rules.

PRIN 2A.3 Consumer Duty: retail customer outcome - products and services

General nature of product governance obligations

PRIN 2A.3.1 G

1The product governance obligations on firms under Principle 12 are general in nature and should be considered alongside any other legal or regulatory obligations that may apply, for example any marketing restrictions in relation to the product.

Manufacturer product governance arrangements

PRIN 2A.3.2 R

1A manufacturer must maintain, operate and review a process for the approval of:

  1. (1)

    a product; and

  2. (2)

    significant adaptations of a product,

in each case before it is marketed or distributed to retail customers.

PRIN 2A.3.3 G

1 PRIN 2A.3.2R includes any product which is a new product manufactured on or after 31 July 2023, or an existing product. In relation to an existing product “marketing” or “distributing” includes reference to any future activity regardless of whether the product has previously been made available for marketing or distribution.

Manufacturers: product approval process for products that are not closed products

PRIN 2A.3.4 R

1For each product that is not a closed product, a manufacturer’s product approval procedures must:

  1. (1)

    specify the target market for the product at a sufficiently granular level, taking into account the characteristics, risk profile, complexity and nature of the product;

  2. (2)

    take account of any particular additional or different needs, characteristics and objectives that might be relevant for retail customers in the target market with characteristics of vulnerability;

  3. (3)

    ensure that all relevant risks to the target market, including any relevant risks to retail customers with characteristics of vulnerability, are assessed;

  4. (4)

    ensure that the design of the product:

    1. (i)

      meets the needs, characteristics and objectives of the target market;

    2. (ii)

      does not adversely affect groups of retail customers in the target market, including groups of retail customers with characteristics of vulnerability; and

    3. (iii)

      avoids causing foreseeable harm in the target market;

  5. (5)

    ensure that the intended distribution strategy is appropriate for the target market; and

  6. (6)

    require the manufacturer to take all reasonable steps to ensure that the product is distributed to the identified target market.

Manufacturers: product approval process for closed products

PRIN 2A.3.5 R
  1. (1)

    1A manufacturer of a closed product must maintain, operate and review a process to assess and regularly review whether any aspect of the product results in the firm not complying with the cross-cutting obligations (PRIN 2A.2) in relation to existing retail customers.

  2. (2)

    The manufacturer’s process in (1) does not have to comply with PRIN 2A.3.2R, PRIN 2A.3.4R, PRIN 2A.3.7R, PRIN 2A.3.9R, PRIN 2A.3.10R, PRIN 2A.3.11R or PRIN 2A.3.12R.

PRIN 2A.3.6 R

1The manufacturer’s process must also assess and regularly review whether the closed product affects groups of retail customers in different ways and in particular whether any retail customers in the target market with characteristics of vulnerability are adversely affected by any aspect of the product.

Manufacturer: review

PRIN 2A.3.7 R

1A manufacturer must regularly review its products taking into account any event that could materially affect the potential risk to the target market. In doing so, the manufacturer must assess at least the following:

  1. (1)

    whether the product meets the identified needs, characteristics and objectives of the target market, including identified needs, characteristics and objectives of retail customers in the target market with characteristics of vulnerability; and

  2. (2)

    whether the intended distribution strategy remains appropriate, including whether the product is being distributed to the target market or reaching retail customers outside the target market.

Manufacturer: action following review of products

PRIN 2A.3.8 R

1Where a manufacturer identifies any circumstances related to the product that may adversely affect retail customers, the manufacturer must:

  1. (1)

    take appropriate action to mitigate the situation and prevent any further harm; and

  2. (2)

    where appropriate, promptly inform other relevant persons in the distribution chain about the circumstances that led to action being taken and the remedial action taken.

Manufacturers: testing products

PRIN 2A.3.9 R
  1. (1)

    1Manufacturers must test their products appropriately, including scenario analyses where relevant.

  2. (2)

    A manufacturer must, as part of discharging its obligations in (1), assess whether the product meets the identified needs, characteristics and objectives of the target market, including identified needs, characteristics and objectives of retail customers in the target market with characteristics of vulnerability.

  3. (3)

    Manufacturers must test their products in a qualitative manner and, depending on the type and nature of the product and the related risk of detriment to retail customers, quantitative manner.

PRIN 2A.3.10 R

1If the results of the testing show that the product does not meet the identified needs, characteristics and objectives of the target market, including identified needs, characteristics and objectives of any group or groups of retail customers in the target market with characteristics of vulnerability:

  1. (1)

    in relation to a new product or a significant adaptation of an existing product, the manufacturer must not bring the new or adapted product to the market;

  2. (2)

    in relation to an existing product, it must immediately:

    1. (a)

      cease marketing or distributing the product (whether directly or indirectly);

    2. (b)

      cease any renewals for existing retail customers, provided that existing retail customers are easily able to move to an alternative product that provides at least the same level of benefit at an equivalent cost to the customer, whether with the firm or with another firm; and

    3. (c)

      (where the firm intends to continue to market and distribute the product), make such changes as are necessary for the product to meet the identified needs, characteristics and objectives of the target market, including identified needs, characteristics and objectives of any group or groups of retail customers in the target market with characteristics of vulnerability.

Manufacturers: collaborating on manufacture

PRIN 2A.3.11 R

1Where firms collaborate to manufacture a product, they must set out in a written agreement their respective roles and responsibilities in the product approval process in PRIN 2A.3.

Manufacturer: selecting distribution channels and providing information to distributors

PRIN 2A.3.12 R
  1. (1)

    1A manufacturer must select distribution channels that are appropriate for the target market.

  2. (2)

    A manufacturer must provide each distributor with adequate information in good time to enable it to comply with the rules applicable to it in this section.

  3. (3)

    The information to be made available under (2) includes all appropriate information regarding the product and the product approval process from time to time to enable the distributor to comply with PRIN 2A.3.16R.

PRIN 2A.3.12A G

2A manufacturer that is a manager is reminded of its obligations under ESG 4.1.8R and ESG 5.2.9R in meeting its obligations under PRIN 2A.3.12R.

Distributors: unregulated manufacturer

PRIN 2A.3.13 R

1Where a distributor distributes a product manufactured by a person to whom the rules in PRIN 2A.3 do not apply, it must take all reasonable steps to comply with PRIN 2A.3.14R to 2A.3.23G.

Distributor: distribution arrangements

PRIN 2A.3.14 R

1A distributor must maintain, operate and review product distribution arrangements for each product it distributes that:

  1. (1)

    avoid causing and, where that is not practical, mitigates foreseeable harm to retail customers;

  2. (2)

    support a proper management of conflicts of interest; and

  3. (3)

    ensure the needs, characteristics and objectives of the target market are duly taken into account.

PRIN 2A.3.15 G

1 PRIN 2A.3.14R includes any product whether a new product distributed on or after 31 July 2023, or an existing product. In relation to an existing product, “distributes” includes reference to any future distribution activity regardless of whether the product has previously been made available for distribution, for example, renewing a contract with an existing retail customer.

Distributors: obtaining information from manufacturers

PRIN 2A.3.16 R

1A distributor must ensure that the product distribution arrangements contain effective measures and procedures to obtain sufficient, adequate and reliable information from the manufacturer about the product to:

  1. (1)

    understand the characteristics of the product;

  2. (2)

    understand the identified target market;

  3. (3)

    consider the needs, characteristics and objectives of any retail customers in the target market with characteristics of vulnerability;

  4. (4)

    identify the intended distribution strategy for the product; and

  5. (5)

    ensure the product will be distributed in accordance with the needs, characteristics and objectives of the target market.

PRIN 2A.3.16A G

2A distributor is reminded of its obligations under ESG 4.1.16R to ESG 4.1.19R in meeting its obligations under PRIN 2A.3.16R.

Distributors: specific distribution strategy

PRIN 2A.3.17 R
  1. (1)

    1This rule applies where a distributor sets up or implements a specific distribution strategy to supplement the manufacturer’s strategy under PRIN 2A.3.4R(5).

  2. (2)

    Any strategy set up or implemented by a distributor must be consistent with:

    1. (a)

      the manufacturer’s intended distribution strategy; and

    2. (b)

      the identified target market.

Distributors: providing sales information to manufacturers

PRIN 2A.3.18 R

1To support product reviews carried out by manufacturers, a distributor must, upon request, provide manufacturers with relevant information including, where appropriate, sales information and information on the regular reviews of the product distribution arrangements.

Distributors: review

PRIN 2A.3.19 R
  1. (1)

    1A distributor must regularly review its distribution arrangements to ensure that they are still appropriate and up to date.

  2. (2)

    When reviewing the distribution arrangements, a distributor must verify that it is only distributing each product to the identified target market.

Distributor: action following review of products

PRIN 2A.3.20 R

1Where a distributor identifies an issue following a review, it must:

  1. (1)

    make appropriate amendments to the product distribution arrangements;

  2. (2)

    where harm has been identified, take appropriate action to mitigate the situation and prevent any further harm; and

  3. (3)

    promptly inform all relevant persons in the distribution chain about any action taken.

Vested rights

PRIN 2A.3.21 R

1Where a product has existing contracts entered into before 31 July 2023, unless the firm has identified a breach of rules in force at the time, the appropriate action a firm must take under PRIN 2A.3.8R or PRIN 2A.3.20R does not require a firm to waive its vested rights under those existing contracts.

PRIN 2A.3.22 G

1For the purposes of PRIN 2A.3.21R, vested rights are likely to include the following:

  1. (1)

    payments already due under the terms of the contract;

  2. (2)

    remuneration for services wholly or partly provided under the contract; and

  3. (3)

    contractual charges payable on early termination of the contract.

PRIN 2A.3.23 G

1Whether a right is a vested right or not will depend on all the facts of the case and interpretation of the relevant contract.

Application of the product governance outcome

PRIN 2A.3.24 R

1 PRIN 2A.3 does not apply to any firm subject to PROD 3, PROD 4, or PROD 7 for any product they manufacture or distribute that falls within the scope of the relevant PROD chapter.

PRIN 2A.3.25 G

1 Products within scope of PROD include any product significantly adapted since the relevant PROD rules came into force, legacy non-investment insurance products and funeral plans which were existing products as of 29 July 2022.

PRIN 2A.3.26 R

1A closed product not already subject to PROD must follow the closed product rules set out in PRIN 2A.3.5R to PRIN 2A.3.6R and 2A.3.21R to PRIN 2A.3.23G.

PRIN 2A.3.27 G

1A closed product will already be subject to PROD if it is:

  1. (1)

    a financial instrument or structured deposit manufactured by a firm subject to PROD 3 on or after 3 January 2018;

  2. (2)

    an insurance product manufactured on or after 1 October 2018 or a legacy non-investment insurance product; or

  3. (3)

    a funeral plan product manufactured on or after 29 July 2022.

PRIN 2A.3.28 R

1 PRIN 2A.3 does not apply to both:

  1. (1)

    units in an authorised fund or the sub-fund of such a scheme, where the relevant authorised fund or sub-fund is in the process of winding up or termination under, or in accordance with, COLL 7.3, COLL 7.4, or COLL 7.4A; and

  2. (2)

    units or shares in a fund or sub-fund which is not an authorised fund or a sub-fund of such a scheme or AIF, where the relevant fund or sub-fund is in a process of winding up or termination which is equivalent to that referred to in (1).

Compliance with other Handbook provisions

PRIN 2A.3.29 G

1A firm which either:

  1. (1)

    conducts business in relation to products that would be covered by chapters in PROD if they were manufactured after the date the relevant chapter in PROD came into force; or

  2. (2)

    is subject to PROD 1.3.2R,

may choose whether to apply either the processes set out in the relevant chapter of PROD that applies to the product (PROD 3 for financial instruments and structured deposits and PROD 4 for insurance products) or the processes set out in PRIN 2A.3. PRIN 2A.3.30E sets out the circumstances where a firm that chooses to comply with the relevant chapter of PROD is likely to be considered in breach of PRIN 2A.3.

PRIN 2A.3.30 E
  1. (1)

    1This provision applies to:

    1. (a)

      any firm to which PROD 1.3.2R applies;

    2. (b)

      a manufacturer of an existing product manufactured before 3 January 2018, which is a financial instrument or a structured deposit; and

    3. (c)

      a manufacturer of an existing product manufactured before 1 October 2018 which is an insurance product, but which is not a legacy non-investment insurance product.

  2. (2)

    For firms within (1)(a) or (b), where the firm is following the provisions of PROD 3, contravention of PROD 3 may be relied on as tending to establish contravention of those provisions of PRIN 2A.3 that apply to the firm.

  3. (3)

    For firms within (1)(c), where the firm is following the provisions of PROD 4, contravention of PROD 4 may be relied on as tending to establish contravention of those provisions of PRIN 2A.3 that apply to the firm.

PRIN 2A.4 Consumer Duty: retail customer outcome on price and value

What is value?

PRIN 2A.4.1 R

1For the purposes of this outcome:

  1. (1)

    value is the relationship between the amount paid by a retail customer for the product and the benefits they can reasonably expect to get from the product; and

  2. (2)

    a product provides fair value where the amount paid for the product is reasonable relative to the benefits of the product.

Price and value: manufacturers general obligation

PRIN 2A.4.2 R

1A manufacturer must:

  1. (1)

    ensure that its products provide fair value to retail customers in the target markets for those products; and

  2. (2)

    carry out a value assessment of its products and review that assessment on a regular basis appropriate to the nature and duration of the product.

PRIN 2A.4.3 R

1An initial value assessment must be carried out for:

  1. (1)

    a product; and

  2. (2)

    any significant adaptation of a product,

in each case before it is marketed or distributed to a retail customer.

PRIN 2A.4.4 G

1 PRIN 2A.4.2R and PRIN 2A.4.3R include any product whether a new product manufactured on or after 31 July 2023, an existing product or a closed product. In relation to an existing product or a closed product, “marketing” or “distributing” includes reference to any future activity regardless of whether the product has previously been made available for marketing or distribution.

PRIN 2A.4.5 R

1In ensuring that a product provides fair value, a manufacturer must be satisfied that this will be the case from the point at which the manufacturer completes the assessment for a reasonably foreseeable period, including, where the product is one that renews, following renewal.

PRIN 2A.4.6 G

1What constitutes a ‘reasonably foreseeable period’ will depend on the type of product. This could include the expected length of time a retail customer in the target market will keep it, including, where relevant, the number of occasions the firm would reasonably expect that a retail customer would renew the product.

Product packages

PRIN 2A.4.7 R

1Where a product is intended to be provided with one or more other products, a manufacturer must ensure that:

  1. (1)

    each component product; and

  2. (2)

    the package as a whole,

provides fair value to retail customers in the target market.

The value assessment

PRIN 2A.4.8 R

1A manufacturer’s assessment of whether or not a product provides fair value must include (but is not limited to) consideration of the following:

  1. (1)

    the nature of the product, including the benefits that will be provided or may be reasonably expected and its quality;

  2. (2)

    any limitations that are part of the product;

  3. (3)

    the expected total price to be paid by the retail customer or that may become due from the retail customer. The expected total price includes:

    1. (a)

      the price paid or agreed to be paid by the retail customer on entering into a contract for the product, including by way of repayments;

    2. (b)

      any regular charges or fees payable over the lifetime of the product, for example an annual management charge;

    3. (c)

      any contingent fees or charges, for example, administrative charges for changes of address, charges for falling into arrears on a loan, or charges for transferring investments; and

    4. (d)

      any non-financial costs the retail customer is asked or required to provide to the firm; and

  4. (4)

    any characteristics of vulnerability that retail customers in the target market display and the impact these characteristics have on the likelihood that retail customers may not receive fair value from its products.

Guidance on the value assessment: factors that may be considered

PRIN 2A.4.9 G

1A manufacturer may consider one or more of the following in its assessment of whether or not a product is providing fair value:

  1. (1)

    the costs incurred by the firm in manufacturing or distributing the product;

  2. (2)

    the market rate and charges for a comparable product;

  3. (3)

    any accrued costs and/or benefits for existing or closed products; and

  4. (4)

    whether there are any products that are priced significantly lower for a similar or better benefit.

Guidance on the value assessment: benefits and costs

PRIN 2A.4.10 G
  1. (1)

    1The types of benefits that retail customers may reasonably expect to obtain may include non-financial benefits such as an enhanced level of customer service providing extra assistance to retail customers in using the product.

  2. (2)

    Examples of non-financial costs include the provision of personal data and the granting of permission to use that data.

Guidance on the value assessment: characteristics of retail customers

PRIN 2A.4.11 G

1In considering the value assessment and how it applies when manufacturers have different groups of retail customer in their target market for a product, they should have regard in particular to the following:

  1. (1)

    whether any retail customers who have characteristics of vulnerability may be less likely to receive fair value; and

  2. (2)

    whether the product provides fair value for each of the different groups of retail customer in the target market, including in circumstances where the pricing structure of the product involves different prices being charged to different groups of retail customers.

Guidance on the value assessment: interaction with the Duty and the retail customer outcomes

PRIN 2A.4.12 G

1In ensuring that a product provides fair value, a manufacturer should have regard to how the cross-cutting obligations (PRIN 2A.2) and the other retail customer outcome rules (PRIN 2A.3 to PRIN 2A.6) are met in respect of the product.

Manufacturers: collaboration with another firm or with unregulated persons

PRIN 2A.4.13 R

1Where firms collaborate to manufacture a product, they must set out in a written agreement their respective roles and responsibilities in the value assessment in PRIN 2A.4.

PRIN 2A.4.14 R

1Where a firm collaborates with a person who is not a firm to manufacture a product, it remains fully responsible for discharging all its obligations under PRIN 2A.4.

Manufacturers: information for distributors

PRIN 2A.4.15 R

1The manufacturer of a product must ensure that firms distributing the product have all necessary information to understand the value that the product is intended to provide to a retail customer.

Price and value: distributors general obligation

PRIN 2A.4.16 R
  1. (1)

    1A distributor must not distribute a product unless its distribution arrangements are consistent with the product providing fair value to retail customers.

  2. (2)

    Arrangements will be consistent with providing fair value to retail customers where they enable the distributor to obtain enough information from the manufacturer to understand the outcome of the value assessment and in particular to identify:

    1. (a)

      the benefits the product is intended to provide to a retail customer;

    2. (b)

      the characteristics, objectives and needs of the target market;

    3. (c)

      the interaction between the price paid by the retail customer and the extent and quality of any services provided by the distributor; and

    4. (d)

      whether the impact that the distribution arrangements (including any remuneration it or (so far as the distributor is aware of it) another person in the distribution chain receives) would result in the product ceasing to provide fair value to retail customers.

Distributors: unregulated manufacturer

PRIN 2A.4.17 R

1Where a distributor distributes a product manufactured by a person to whom the rules in PRIN 2A.4 do not apply, it must take all reasonable steps to comply with PRIN 2A.4.16R.

Distribution chains

PRIN 2A.4.18 R
  1. (1)

    1A firm which distributes products to retail customers is responsible for ensuring the fair value obligations in relation to distribution are met in respect of any product it distributes to a retail customer.

  2. (2)

    A firm which distributes products to other distributors must ensure that all information relevant to the value assessment is passed to the distributor at the end of the distribution chain.

  3. (3)

    A firm which distributes products to other firms in the distribution chain must consider whether they are also a co-manufacturer of the product they are distributing and if they are, apply the manufacturer rules in this section.

When must a manufacturer and a distributor consider the value assessment?

PRIN 2A.4.19 R

1 Manufacturers and distributors are responsible for the value assessment as follows:

  1. (1)

    A manufacturer must consider the fair value assessment at every stage of the product approval process, including in particular when:

    1. (a)

      designing the product;

    2. (b)

      identifying retail customers in the target market for whom the product needs to provide fair value; and

    3. (c)

      selecting distributions methods/channels.

  2. (2)

    A distributor must consider the fair value assessment when determining the distribution strategy for the product and in particular where the product is to be distributed with another product whether as part of a package or not.

The value assessment: general

PRIN 2A.4.20 R

1In determining whether a product provides fair value, or distribution arrangements are consistent with fair value being provided, a firm must not rely on individual retail customers to consider whether they believe the product provides fair value in place of the firm’s own assessment.

Closed products

PRIN 2A.4.21 R
  1. (1)

    1The obligation on manufacturers in PRIN 2A.4.2R to ensure that a product provides fair value applies to closed products as well as new and existing products.

  2. (2)

    In the case of a closed product, the reference to a target market in PRIN 2A.4.2R should be read as referring to the retail customers who are customers of the closed product.

Guidance on the value assessment: closed and existing products

PRIN 2A.4.22 G

1The assessment of whether a closed product or an existing product provides fair value should be on a forward-looking basis only. Unless required to do so by any other rule, manufacturers do not need to consider whether their closed products or existing products provided fair value prior to these rules coming into force.

PRIN 2A.4.23 G

1In assessing whether a closed product or an existing product provides fair value, a manufacturer may take into account the benefits provided, the costs charged to the retail customer and the costs incurred by the firm prior to these rules coming into effect.

[Note: See also PRIN 2A.4.29R regarding appropriate action for closed products if the product no longer provides fair value.]

Reviewing the value assessment

PRIN 2A.4.24 R
  1. (1)

    1A manufacturer must regularly review the value assessment throughout the life of the product to ensure that the product continues to provide fair value to retail customers in the target market.

  2. (2)

    A distributor must regularly review its distribution arrangements throughout the life of the product to ensure that they remain consistent with the product providing fair value to retail customers in the target market.

PRIN 2A.4.25 R

1Where a manufacturer identifies in its review of its value assessment that the product no longer provides fair value, it must take appropriate action to:

  1. (1)

    mitigate, and where appropriate, remediate any harm caused to existing retail customers; and

  2. (2)

    prevent harm to new retail customers.

PRIN 2A.4.26 R

1Appropriate action under PRIN 2A.4.25R includes notifying the distributor(s) of the product of the issue and of any changes to the product and the distribution strategy that the manufacturer has put place to mitigate and prevent further harm.

PRIN 2A.4.27 R

1Where a distributor identifies that the product no longer provides fair value, whether that is due to aspects of the product or the distribution arrangements, it must take appropriate action to:

  1. (1)

    mitigate the situation and prevent further occurrences of any possible harm to retail customers, including, where appropriate, amending the distribution strategy for that product (and, where relevant, the package);

  2. (2)

    redress any foreseeable harm that has been caused to retail customers by faults in the distributor’s distribution arrangements; and

  3. (3)

    inform any relevant manufacturers and other distributors in the chain promptly about any concerns they have and any action the distributor is taking.

PRIN 2A.4.28 G

1The appropriate action that a distributor may need to take under PRIN 2A.4.27R will depend on the role the distributor has in the distribution chain and in relation to the product being distributed. A distributor who is a co-manufacturer of the product being distributed is likely to be able to do more to mitigate the situation than distributors who are not co-manufacturers.

Vested rights

PRIN 2A.4.29 R

1In the case of a closed product, or an existing product held by a retail customer before 31 July 2023, unless the firm has identified a breach of rules in existence before 31 July 2023, the appropriate action a firm may take does not require a firm to waive its vested contractual rights.

PRIN 2A.4.30 G

1For the purposes of PRIN 2A.4.29R, vested contractual rights include the following:

  1. (1)

    payments already due under the terms of the contract;

  2. (2)

    remuneration for services wholly or partly provided under the contract; and

  3. (3)

    contractual charges payable on early termination of the contract.

PRIN 2A.4.31 G

1Whether a right is a vested right or not will depend on all the facts of the case and interpretation of the relevant contract.

Application of the price and value outcome

PRIN 2A.4.32 R
  1. (1)

    1 The rules in PRIN 2A.4 do not apply to:

    1. (a)

      a firm which manufactures or distributes a non-investment insurance product or a legacy non-investment insurance product;

    2. (b)

      a firm which manufactures or distributes any funeral plan product subject to PROD 7; and

    3. (c)

      an authorised fund manager in relation to products subject to COLL 6.6.19R to 6.6.26G, COLL 8.5.16R to 8.5.22R, or COLL 15.7.16R to 15.7.24R.

  2. (2)

    A firm in (1) must continue to apply PROD 4 andPROD 7 or the relevant COLL rules .

PRIN 2A.4.33 R

1 PRIN 2A.4 does not apply to both:

  1. (1)

    units in an authorised fund or the sub-fund of such a scheme, where the relevant authorised fund or sub-fund is in the process of winding up or termination under, or in accordance with, COLL 7.3, COLL 7.4, or COLL 7.4A; and

  2. (2)

    units or shares in a fund or sub-fund which is not an authorised fund or a sub-fund of such a scheme or AIF, where the relevant fund or sub-fund is in a process of winding up or termination which is equivalent to that referred to in (1).

PRIN 2A.4.34 R
PRIN 2A.4.35 E

1Where a manufacturer of a closed product which is a funeral plan product manufactured before 29 July 2022 is following the provisions of PROD 7 concerning the fair value of funeral plan products, contravention of PROD 7 may be relied on as tending to establish contravention of those provisions of PRIN 2A.4 that apply to the firm.

Application to pension scheme operators and providers of pathway investments

PRIN 2A.4.36 R
  1. (1)

    1This rule applies to a firm that is required to comply with COBS 19.5 (Independent Governance Committees (IGCs) and publication and disclosure of costs and charges).

  2. (2)

    A firm to which this rule applies must use the value for money assessment carried out by the IGC or the governance advisory arrangement when carrying out its value assessment under PRIN 2A.4.2R.

  3. (3)

    Where a firm disagrees with the value for money assessment carried out by the IGC or the governance advisory arrangement it must:

    1. (a)

      explain why it disagrees with the assessment; and

    2. (b)

      set out how it considers the relevant scheme or pathway investment provides fair value.

  4. (4)

    In setting out how it considers the relevant scheme or pathway investment provides fair value the firm must use the framework set out in COBS 19.5.

  5. (5)

    A firm that is unable to adequately explain why it disagrees with a value for money assessment conducted under COBS 19.5 must apply PRIN 2A.4.25R to the relevant scheme or pathway investment.

PRIN 2A.5 Consumer Duty: retail customer outcome on consumer understanding

Application

PRIN 2A.5.1 R
  1. (1)

    1Other than PRIN 2A.5.15R, this section applies to:

    1. (a)

      all firms to whom Principle 12 and PRIN 2A apply,2 involved in the production, approval or distribution of retail customer communications, regardless of whether the firm has a direct relationship with a retail customer, and including where a firm produces, approves or distributes financial promotions or other advertisements, sales-related communications, and post-sale communications (and references to a firm’s communications or a firm communicating are to be read accordingly);

    2. (b)

      all communications throughout a firm’s interactions with retail customers, including:

      1. (i)

        before, during, and after any sale of a product; and

      2. (ii)

        interactions that do not relate to a specific product; and

    3. (c)

      all communications including verbal, visual or in writing, from a firm to a retail customer, regardless of the channel used or intended to be used for the communication, including electronic communications, such as on social media.

  2. (2)

    PRIN 2A.5.15R applies to all firms to whom Principle 12 and PRIN 2A apply2.

PRIN 2A.5.2 G

1 Retail customers in this section means the retail customers intended to receive the communication.

Communications to retail customers

PRIN 2A.5.3 R
  1. (1)

    1A firm must support retail customer understanding so that its communications:

    1. (a)

      meet the information needs of retail customers;

    2. (b)

      are likely to be understood by retail customers; and

    3. (c)

      equip retail customers to make decisions that are effective, timely and properly informed.

  2. (2)

    A firm must communicate information to retail customers in a way which is clear, fair and not misleading.

PRIN 2A.5.4 R

1With regard to PRIN 2A.5.3R(1):

  1. (1)

    for product-specific communications, a firm should consider the target market for that product; or

  2. (2)

    for non product-specific communications, a firm should consider its retail customers.

PRIN 2A.5.5 R

1With regard to PRIN 2A.5.3R(1)(c), for a firm to provide information on a timely basis, it must communicate in good time for retail customers to make effective decisions, including:

  1. (1)

    before the purchase of a product; and

  2. (2)

    at suitable points throughout the lifecycle of the product.

PRIN 2A.5.6 R

1In considering the methods of communicating with retail customers, a firm must satisfy itself that the communication channel:

  1. (1)

    enables the communication of relevant information which retail customers are likely to need in a way that supports effective decision making; and

  2. (2)

    provides an appropriate opportunity for retail customers to review the information and, where relevant, assess their options.

PRIN 2A.5.7 G

1In supporting the understanding of retail customers through its communications, a firm should:

  1. (1)

    explain or present information in a logical manner;

  2. (2)

    use plain and intelligible language and, where use of jargon or technical terms is unavoidable, explain the meaning of any jargon or technical terms as simply as possible;

  3. (3)

    make key information prominent and easy to identify, including by means of headings and layout, display and font attributes of text, and by use of design devices such as tables, bullet points, graphs, graphics, audio-visuals and interactive media;

  4. (4)

    avoid unnecessary disclaimers; and

  5. (5)

    provide relevant information with an appropriate level of detail, to avoid providing too much information such that it may prevent retail customers from making effective decisions.

PRIN 2A.5.8 R

1In supporting the understanding of retail customers, the firm must tailor communications provided to retail customers, taking into account:

  1. (1)

    the characteristics of retail customers, including any characteristics of vulnerability;

  2. (2)

    the complexity of the product;

  3. (3)

    the communication channel(s) used; and

  4. (4)

    the role of the firm, including whether the firm is providing regulated advice or information only.

Interacting on a one-to-one basis

PRIN 2A.5.9 R

1When a firm is interacting directly with a retail customer on a one-to-one basis, such as in branch, during a telephone conversation or other interactive dialogue, the firm must, where appropriate:

  1. (1)

    tailor the communication to meet the information needs of that retail customer, taking into account whether they have characteristics of vulnerability; and

  2. (2)

    ask the retail customer whether they understand the information and if they have any further questions, particularly if the information is reasonably regarded as key information, such as where it prompts that retail customer to make a decision.

Testing, monitoring and adapting communications

PRIN 2A.5.10 R
  1. (1)

    1Where appropriate, a firm must:

    1. (a)

      test communications before communicating them to retail customers; and

    2. (b)

      (as set out in PRIN 2A.9) regularly monitor the impact of the communications once they have been communicated,

    to identify whether they are supporting good outcomes for retail customers.

  2. (2)

    Where a firm has identified any issues in its communications through PRIN 2A.5.10R(1), it must:

    1. (a)

      investigate the issue;

    2. (b)

      correct any deficiencies through:

      1. (i)

        adapting its communications; and

      2. (ii)

        (where appropriate) adapting its products or processes, for example its sales processes, if it is aware or ought to reasonably be aware that adapting its communications would not be sufficient in isolation to support good outcomes for retail customers; and

    3. (c)

      (where appropriate) follow the requirements in relation to remedies and other action in PRIN 2A.2.5R and PRIN 2A.10.

PRIN 2A.5.11 G

1With regard to the firm’s role, it would be more appropriate for the firm to:

  1. (1)

    test communications if the firm is or ought to reasonably be responsible for:

    1. (a)

      the production of those communications; or

    2. (b)

      adapting those communications after testing; and

  2. (2)

    monitor the impact of communications where the firm has direct interactions with retail customers, such as through the provision of customer services (whether outsourced in whole or in part).

PRIN 2A.5.12 G

1In determining whether testing of a communication is appropriate, a firm should consider factors such as:

  1. (1)

    the purpose of the communication and, in particular, if it is designed to prompt or inform a decision, and the relative importance of that decision;

  2. (2)

    the context of the communication, its timing, and its frequency (for example, it is likely to be more appropriate to test communications that could impact many retail customers);

  3. (3)

    the information needs of retail customers;

  4. (4)

    the characteristics of vulnerability of retail customers;

  5. (5)

    whether the scope for harm to retail customers is likely to be significant, including if the information being conveyed were misunderstood or overlooked by retail customers; and

  6. (6)

    whether, to support good outcomes for retail customers, it is more important to communicate information urgently, rather than carrying out testing beforehand.

PRIN 2A.5.13 G
  1. (1)

    1A firm should adapt its communications in accordance with PRIN 2A.5.10R(2)(b)(i) to support retail customer understanding if it identifies that:

    1. (a)

      there are areas of common misunderstanding among retail customers; or

    2. (b)

      retail customers are not experiencing good outcomes, including particular groups of retail customers such as those with characteristics of vulnerability.

  2. (2)

    For the purposes of PRIN 2A.5.13G(1)(a), if there is a notably different response by retail customers than was reasonably anticipated by the firm or ought to have been reasonably anticipated, including a notably lower response rate, following a communication prompting retail customers to take action, then this would suggest that the communication has not been understood.

PRIN 2A.5.14 R

1Where a firm identifies or becomes aware of a communication produced by another firm in its distribution chain that is not delivering good outcomes for retail customers, it must promptly notify the issue to the relevant firm in the distribution chain, such as a manufacturer.

Providing information to other firms

PRIN 2A.5.15 R

1A firm must provide information in good time to another firm in the same distribution chain, where such information is:

  1. (1)

    requested by the other firm and is reasonably required; or

  2. (2)

    otherwise considered to be reasonably required by the firm,

so that it can be communicated to retail customers.

PRIN 2A.6 Consumer Duty: retail customer outcome on consumer support

Application

PRIN 2A.6.1 R
  1. (1)

    1Other than in PRIN 2A.6.6R, this section applies:

    1. (a)

      to all firms to whom Principle 12 and PRIN 2A apply,2 who are responsible for interacting directly with, and providing support to, retail customers, such as through its customer services functions and including where the firm outsources its interactions with retail customers to a third party (in whole or part);

    2. (b)

      regardless of the channel used or intended to be used when interacting with, or providing support to, retail customers, including via electronic communications such as on social media; and

    3. (c)

      to all support provided by a firm to retail customers, such as in the course of or in connection with the firm providing customer services, including:

      1. (i)

        before, during, and after any sale of a product; and

      2. (ii)

        support that does not relate to a specific product.

  2. (2)

    PRIN 2A.6.6R applies to all firms to whom2Principle 12 and PRIN 2A apply2.

Design and delivery of customer support

PRIN 2A.6.2 R

1A firm must design and deliver support to retail customers such that it:

  1. (1)

    meets the needs of retail customers, including those with characteristics of vulnerability;

  2. (2)

    ensures that retail customers can use their product as reasonably anticipated;

  3. (3)

    ensures that it includes appropriate friction in its customer journeys to mitigate the risk of harm and give retail customers sufficient opportunity to understand and assess their options, including any risks; and

  4. (4)

    ensures that retail customers do not face unreasonable barriers (including unreasonable additional costs) during the lifecycle of a product, such as when they want to:

    1. (a)

      make general enquiries or requests to the firm;

    2. (b)

      amend or switch the product;

    3. (c)

      transfer to a new product provider;

    4. (d)

      access a benefit which the product is intended to provide;

    5. (e)

      submit a claim;

    6. (f)

      make a complaint; or

    7. (g)

      cancel a contract, agreement or arrangement or otherwise terminate their relationship with the firm.

PRIN 2A.6.3 G

1For the purposes of PRIN 2A.6.2R(4):

  1. (1)

    unreasonable barriers are those which are likely to cause retail customers to take unreasonable additional steps to progress their objectives, including:

    1. (a)

      steps which are:

      1. (i)

        unreasonably onerous or time consuming;

      2. (ii)

        complex for a retail customer to carry out; or

      3. (iii)

        difficult for a retail customer to understand; and

    2. (b)

      asking retail customers for unnecessary information or evidence;

  2. (2)

    where a firm has included appropriate friction in its customer journeys to comply with PRIN 2A.6.2R(3), this would not amount to an unreasonable barrier; and

  3. (3)

    unreasonable additional costs includes where retail customers incur unreasonable exit fees or other charges, delays, distress or inconvenience.

PRIN 2A.6.4 G

1A firm would be unlikely to meet its obligations in PRIN 2A.6.2R if its support to retail customers causes or would be likely to cause:

  1. (1)

    prospective retail customers to be prioritised over existing retail customers;

  2. (2)

    unreasonable delays when retail customers attempt to engage with the firm, including disproportionately longer call waiting times to cancel or make changes to an existing product than to purchase a new product; or

  3. (3)

    unreasonable delays to:

    1. (a)

      any payments due to retail customers after they have been agreed;

    2. (b)

      the firm requesting necessary information or evidence from retail customers; or

    3. (c)

      the firm processing information or evidence received from retail customers.

Dealing with representatives

PRIN 2A.6.5 R
  1. (1)

    1Where a person is authorised by a retail customer or by law to assist in the conduct of the retail customer’s affairs (such as a power of attorney), the firm must provide the same level of support to that person that they would have provided to the retail customer.

  2. (2)

    PRIN 2A.6.5R(1) does not apply where the person assisting in the conduct of the retail customer’s affairs is also a firm.

Dealing with requests from other firms

PRIN 2A.6.6 R

1A firm must deal with reasonable requests from another firm in an effective way and in good time to enable the other firm to support retail customers.

PRIN 2A.7 General

Expected standards under Principle 12 and PRIN 2A

PRIN 2A.7.1 R

1 Principle 12 and the obligations in PRIN 2A must be interpreted in accordance with the standard that could reasonably be expected of a prudent firm:

  1. (1)

    carrying on the same activity in relation to the same product; and

  2. (2)

    taking appropriate account of the needs and characteristics of retail customers based on the needs and characteristics of retail customers in the relevant target market or of individual retail customers as the context requires.

PRIN 2A.7.2 G

1What is reasonable depends on all the relevant circumstances, including:

  1. (1)

    the nature of the product being offered or provided, in particular:

    1. (a)

      the risk of harm to retail customers. For example, if a product is higher risk, firms should take additional care to ensure it meets retail customers’ needs, characteristics and objectives and is targeted appropriately;

    2. (b)

      the product’s relative complexity. Retail customers may find it more difficult to assess the features, suitability or value offered by more complicated products. Long-term products where the outcome is not easy to predict, or non-standard charging structures, or other features which may not be easy for retail customers to understand may require greater care from a firm to promote, monitor and support consumer understanding;

    3. (c)

      the costs, fees and charges involved with the product;

    4. (d)

      the relative utility to retail customers of the product as a whole and of specific features, options, or services within the product, if subject to separate fees or charges;

  2. (2)

    the characteristics of the retail customer or retail customers including (to the extent that a firm either knows about or should reasonably have known about them), in particular:

    1. (a)

      their reasonable expectations in relation to the product; and

    2. (b)

      their resources, degree of financial capability or sophistication, characteristics of vulnerability and corporate structure (where relevant).

  3. (3)

    the firm’s role in relation to the product, including:

    1. (a)

      the firm’s relationship with the retail customer. Acting reasonably does not require a firm to assume a fiduciary duty or require an advisory service where it does not already exist;

    2. (b)

      whether the firm has provided or will provide advice to the retail customer. What is reasonable may be different where advice is being provided;

    3. (c)

      the firm’s role in the product’s distribution chain, in particular its role in determining or materially influencing outcomes for retail customers in relation to the product;

    4. (d)

      the stage in the firm’s relationship with the retail customer. There will be times when retail customers are particularly exposed to harm, for example when they fall into arrears or are considering long-term investment decisions. The actions a firm needs to take to be acting reasonably in such circumstances may be greater than when a retail customer is making decisions which carry a lesser risk of adverse outcomes.

PRIN 2A.7.3 G

1Acting in a way that could reasonably be expected of a prudent firm requires more than adopting a single solution that is reasonable. It includes (among other things) considering whether the preferred solution provides good outcomes for all retail customers affected or only some; and if only some, why it does not work for all, and how best to identify additional actions which might mitigate the outcome for those adversely affected.

Protected characteristics and characteristics of vulnerability

PRIN 2A.7.4 G

1In relation to the needs and characteristics of retail customers, a firm should, among other things:

  1. (1)

    pay appropriate regard to the nature and scale of characteristics of vulnerability that exist in any relevant target market;

  2. (2)

    pay appropriate regard to the impact of characteristics of vulnerability on the needs of retail customers in any relevant target market;

  3. (3)

    when dealing with a particular retail customer pay appropriate regard to the needs and characteristics of that retail customer, such as characteristics of vulnerability;

  4. (4)

    assist frontline staff to understand how to actively identify information that could indicate vulnerability and, where relevant, seek information from retail customers with characteristics of vulnerability that will allow staff to respond to their needs; and

  5. (5)

    set up systems and processes in a way that supports and enables retail customers with characteristics of vulnerability to disclose their needs.

PRIN 2A.7.5 G
  1. (1)

    1Firms should be aware that groups of retail customers with specific protected characteristics may have, or be more likely to have, characteristics of vulnerability, for example older customers. In addition, where health is a driver of vulnerability it will likely have substantial overlap with the protected characteristic of ‘disability’ under the Equality Act 2010. Firms should be mindful of this when considering whether they are compliant with Principle 12 and PRIN 2A and their obligations under the Equality Act 2010 or equivalent legislation.

  2. (2)

    Firms should keep themselves appraised of any evidence that may emerge that retail customers with specific protected characteristics are more likely to have characteristics of vulnerability. Firms should take account of any such evidence when considering whether they are compliant with Principle 12 and PRIN 2A and their obligations under the Equality Act 2010 or equivalent legislation.

PRIN 2A.8 Governance and culture

Governance, strategy and policies

PRIN 2A.8.1 R

1A firm must:

  1. (1)

    ensure that Principle 12 and the obligations in this chapter are reflected in their strategies, governance, leadership and people policies, including incentives at all levels; and

  2. (2)

    ensure that retail customer outcomes are a central focus of:

    1. (a)

      the firm’s risk control arrangements under SYSC; and

    2. (b)

      the firm’s internal audit function.

Staff incentives

PRIN 2A.8.2 G

1A firm should not use staff incentives, performance management or remuneration structures in a way that conflicts with their obligations under Principle 12 and PRIN 2A. Firms should be aware that these structures are capable of causing harm to retail customers and should design their structures in a way that is consistent with ensuring good outcomes for retail customers.

Governing body report

PRIN 2A.8.3 R

1A firm must prepare a report for its governing body setting out the results of its monitoring under PRIN 2A.9 and any actions required as a result of the monitoring.

PRIN 2A.8.4 R

1At least annually, the governing body of a firm must:

  1. (1)

    review and approve the firm’s report on the outcomes being received by retail customers;

  2. (2)

    confirm whether it is satisfied that the firm is complying with its obligations under Principle 12 and PRIN 2A; and

  3. (3)

    assess whether the firm’s future business strategy is consistent with its obligations under Principle 12 and PRIN 2A.

PRIN 2A.8.5 R

1When approving the firm’s report under PRIN 2A.8.4R(1), the governing body of the firm must also agree:

  1. (1)

    any action required to address any identified risk that retail customers may not receive good outcomes;

  2. (2)

    any action required to address any identified instance where retail customers have not received good outcomes; and

  3. (3)

    any amendments to the firm’s business strategy to ensure that it remains consistent with meeting the firm’s obligations under Principle 12 and PRIN 2A.

PRIN 2A.9 Monitoring of consumer outcomes

General

PRIN 2A.9.1 R

1This section sets out the general obligation on firms to monitor under Principle 12 and PRIN 2A the outcomes that retail customers are experiencing from their products.

PRIN 2A.9.2 G

1The purpose of the monitoring obligation is to enable firms to identify whether there are any risks that they are not meeting the requirements of the cross-cutting obligations and the retail customer outcomes, and consequently they are not acting to deliver good outcomes for retail customers.

PRIN 2A.9.3 G

1The frequency of monitoring, and the nature of the information a firm must collect to effectively monitor the outcomes received by retail customers depends on the type of firm and its role in the distribution chain, the nature of the product, and the target market.

PRIN 2A.9.4 G
  1. (1)

    1The monitoring obligation applies proportionately to a firm’s role in the distribution chain. Where a firm does not have direct contact with retail customers it should monitor the outcomes of the service it provides, having regard to any information it has about the outcomes experienced by retail customers at the end of the distribution chain.

  2. (2)

    A firm that does not have direct contact with retail customers should act reasonably to obtain information about the outcomes experienced by retail customers of the products the firm has distributed.

PRIN 2A.9.5 G

1To the extent that a firm is also required to carry out specific monitoring or reviews under any of the outcomes in PRIN 2A.3 to PRIN 2A.6, the specific monitoring or reviews form part of the general monitoring required by this section and firms may utilise the information gathered through these processes in preparing the report required under PRIN 2A.8.3R.

PRIN 2A.9.6 G

1In relation to communications, PRIN 2A.5.10R to PRIN 2A.5.14R set out specific requirements on the testing and monitoring of communications.

PRIN 2A.9.7 G

1Where a firm’s compliance with any other rules replaces their requirement to comply with provisions of PRIN 2A, or tends to show compliance with provisions of PRIN 2A, the firm may use any monitoring or reviews it carries out under those other rules in complying with its monitoring obligations under this section.

Requirement to monitor retail customer outcomes

PRIN 2A.9.8 R

1A firm must regularly monitor the outcomes retail customersreceive from:

  1. (1)

    the products the firm manufactures or distributes;

  2. (2)

    the communications the firm has with retail customers; and

  3. (3)

    the customer support the firm provides to retail customers.

PRIN 2A.9.9 R

1The monitoring carried out by a firm must enable it to determine at least:

  1. (1)

    whether retail customers are being, or have been, sold products that have been designed to meet their needs, characteristics and objectives;

  2. (2)

    whether the products that retail customers purchase provide fair value and appropriate action has been taken to address products identified as not providing fair value;

  3. (3)

    whether retail customers are equipped with the right information to make effective, timely and properly informed decisions; and

  4. (4)

    whether retail customers receive the support they need.

PRIN 2A.9.10 R

1The firm’s monitoring must also enable it to identify:

  1. (1)

    whether the firm is complying with Principle 12 and the cross-cutting obligations in PRIN 2A.2;

  2. (2)

    whether for any product the firm manufactures or distributes, any group of retail customers is experiencing different outcomes compared to another group of retail customers of the same product; and

  3. (3)

    whether any retail customers have suffered harm as a result of the firm’s acts or omissions.

Action required of firms

PRIN 2A.9.11 R

1A firm must have in place processes to identify the root causes of any failure to deliver the outcomes listed in PRIN 2A.9.9R for retail customers.

PRIN 2A.9.12 R

1Where a firm identifies that:

  1. (1)

    retail customers are not receiving the outcomes listed in PRIN 2A.9.9R, or there is a risk that retail customers will not receive these outcomes;

  2. (2)

    any group of retail customers for a product are receiving worse outcomes than another group of retail customers for the same product;

  3. (3)

    the firm is not complying with Principle 12 and the cross-cutting obligations in PRIN 2A.2,

it must take appropriate action to address the situation.

PRIN 2A.9.13 G

1 PRIN 2A.9.12R does not require a firm to take action to remove the effects of risks inherent in a product that the firm reasonably believed the retail customer understood and accepted.

PRIN 2A.9.14 G

1 Firms should have regard to PRIN 2A.10 in considering what may be appropriate action under PRIN 2A.9.12R.

Record keeping

PRIN 2A.9.15 G

1 SYSC 3 and SYSC 9 contain high level requirements in relation to record keeping. Firms will need to decide, in line with these requirements, what records they need to keep in relation to their obligations under Principle 12, the cross-cutting obligations and the consumer outcomes.

Obligation to notify the FCA

PRIN 2A.9.16 G

1 Firms are reminded of their obligations under Principle 11 to inform the FCA of anything relating to the firm of which the FCA would reasonably expect notice.

PRIN 2A.9.17 R

1A firm in a distribution chain must notify the FCA if it becomes aware that any other firm in that distribution chain is not or may not be complying with Principle 12 or PRIN 2A.

PRIN 2A.10 Redress or other appropriate action

Purpose

PRIN 2A.10.1 G

1The purpose of this section is to set out the conduct required of firms where they identify foreseeable harm has been caused to retail customers.

Appropriate action

PRIN 2A.10.2 R

1Where a firm is considering what action may be appropriate under PRIN 2A.2.5R:

  1. (1)

    if a complaint or MiFID complaint has been received a firm shall follow the rules in DISP as applicable;

  2. (2)

    if no complaint or MiFID complaint has been received the following rules and guidance apply with the modifications set out below:

    1. (a)

      DISP 1.1A.20R as if it read:

      Once foreseeable harm has been identified by a MiFID investment firm, the firm must:

      (1)

      investigate the circumstances which led to the foreseeable harm competently, diligently and impartially, obtaining additional information as necessary;

      (2)

      assess fairly, consistently and promptly:

      (a)

      the subject matter of the foreseeable harm;

      (b)

      [does not apply]

      (c)

      what remedial action or redress (or both) may be appropriate;

      (d)

      if appropriate, whether it has reasonable grounds to be satisfied that another firm may be solely or jointly responsible for causing the foreseeable harm;

      (3)

      comply promptly with any offer of remedial action or redress accepted by the retail customer.

    2. (b)

      DISP 1.1A.21G as if it read:

      Factors that may be relevant in the assessment of the foreseeable harm under DISP 1.1A.20R(2) include the following:

      (1)

      all the evidence available and the particular circumstances of the foreseeable harm;

      (2)

      similarities with complaints received by the firm and with other instances in which foreseeable harm has been caused without a complaint;

      (3)

      relevant guidance published by the FCA, other relevant regulators, the Financial Ombudsman Service or former schemes; and

      (4)

      appropriate analysis of decisions by the Financial Ombudsman Service concerning complaints which were similar in their fact pattern or outcomes to the circumstances which led to the foreseeable harm in question.

    3. (c)

      DISP 1.4.1R as if it read:

      Once foreseeable harm has been identified by a firm, it must:

      (1)

      investigate the circumstances which led to the foreseeable harm competently, diligently and impartially, obtaining additional information as necessary;

      (2)

      assess fairly, consistently and promptly:

      (a)

      the subject matter of the foreseeable harm;

      (b)

      [does not apply]

      (c)

      what remedial action or redress (or both) may be appropriate;

      (d)

      if appropriate, whether it has reasonable grounds to be satisfied that another firm may be solely or jointly responsible for causing the foreseeable harm;

      taking into account all relevant factors.

      (3)

      offer redress or remedial action when it decides this is appropriate;

      (4)

      explain to the retail customer promptly and in a way that is fair, clear and not misleading that harm has been identified, its assessment of the harm, its decision as to what action is appropriate and the fact that the retail customer has a right to make a complaint if it is not satisfied with that decision;

      (5)

      comply promptly with any offer of remedial action or redress accepted by the retail customer.

    4. (d)

      DISP 1.4.2G as if it read:

      Factors that may be relevant in the assessment of the foreseeable harm under DISP 1.4.1R(2) include the following:

      (1)

      all the evidence available and the particular circumstances of the foreseeable harm;

      (2)

      similarities with complaints received by the firm and with other instances in which foreseeable harm has been caused without a complaint;

      (3)

      relevant guidance published by the FCA, other relevant regulators, the Financial Ombudsman Service or former schemes; and

      (4)

      appropriate analysis of decisions by the Financial Ombudsman Service concerning complaints which were similar in their fact pattern or outcomes to the circumstances which led to the foreseeable harm in question (the procedures for which are described in DISP 1.3.2AG).

PRIN 2A.10.3 R

1A firm, MiFID investment firm or third country investment firm which identifies that it has caused retail customers foreseeable harm but which does not have a client relationship with that customer or the means to contact them shall take all reasonable steps to notify a customer of the matters in DISP 1.4.1R as modified by PRIN 2A.10.2R(2).

PRIN 2A.10.4 G

1Reasonable steps for the purposes of 2A.10.3R might include (among other things) contacting the distributor of the relevant product and asking whether information can be passed on to the retail customer.

PRIN 2A.10.5 R

1Where a firm, MiFID investment firm or third country investment firm identifies that a retail customer has been caused harm but concludes that another firm in the distribution chain was the sole or joint cause of that harm, it shall promptly notify that other firm and provide appropriate information about the harm caused.

PRIN 2A.11 Sale and purchase of product books

PRIN 2A.11.1 R

1This section applies where:

  1. (1)

    a firm has purchased or purchases a product book from another firm; and

  2. (2)

    a firm sells a product book.

PRIN 2A.11.2 R
  1. (1)

    1Where the product book was purchased before 31 July 2023, the firm must comply with Principle 12 and PRIN 2A.

  2. (2)

    Unless:

    1. (a)

      the firm was a co-manufacturer of the product; or

    2. (b)

      the firm has significantly adapted the product on or after 31 July 2023,

    the requirement in (1) to comply with PRIN 2A.3 and PRIN 2A.4 is a requirement on the firm to use its best endeavours to comply with the applicable rules in those chapters.

PRIN 2A.11.3 G

1A firm that is required to apply PRIN 2A.3 or PRIN 2A.4 to a product book on a ‘best endeavours’ basis should continue to have regard to the RPPD and should read references in the RPPD to Principles 6 and 7 as referring to Principle 12.

PRIN 2A.11.4 R
  1. (1)

    1This rule applies where a product book is sold for the first time after 31 July 2023.

  2. (2)

    The firm selling the product book must provide relevant information to the purchasing firm to enable the purchasing firm to comply with Principle 12 and PRIN 2A from the date of purchase.

  3. (3)

    A firm which purchases a product book after 31 July 2023 must carry out sufficient due diligence to ensure they understand in particular:

    1. (a)

      whether any group or groups of retail customers of the product have characteristics of vulnerability or as a group have in common a specific protected characteristic in the same form (for example customers of the same sex or race);

    2. (b)

      the outcome of the selling firm’s product approval process for the product book and the outcome of any product reviews carried out by the selling firm under PRIN 2A.3;

    3. (c)

      the benefits the product is intended to provide and the costs the retail customer pays for the product; and

    4. (d)

      the basis on which the product has been assessed as providing fair value under PRIN 2A.4.

  4. (4)

    The due diligence conducted by the purchasing firm must be sufficient to enable the purchasing firm to comply with Principle 12 and PRIN 2A in respect of the product book.

PRIN 2A.11.5 R

1Where a firm purchases a product book after 31 July 2023 and the first sale of that product book took place before 31 July 2023, the firm must apply PRIN 2A.11.2R.