FRE2 AC7.1: Regulatory principles for fair and ethical outcomes

Assessment criterion 7.1 asks you to apply regulatory principles and requirements to promote fair and ethical outcomes for customers. It covers the Principles for Businesses and conduct rules, the FCA's focus on preventing or reducing harm to consumers, market conduct (MAR), culture and senior management, and consumer rights and unfair contract terms. In the CeMAP® FRE2 exam these ideas are often tested through a scenario: which Principle has been breached, or what the firm should now do.

The Principles for Businesses (PRIN 2.1.1R)

No.	Principle	A firm must...
1	Integrity	conduct its business with integrity
2	Skill, care and diligence	conduct its business with due skill, care and diligence
3	Management and control	take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems
4	Financial prudence	maintain adequate financial resources
5	Market conduct	observe proper standards of market conduct
6	Customers' interests	pay due regard to the interests of its customers and treat them fairly
7	Communications with clients	pay due regard to clients' information needs and communicate in a way that is clear, fair and not misleading
8	Conflicts of interest	manage conflicts of interest fairly, between itself and customers and between customers
9	Customers: relationships of trust	take reasonable care to ensure the suitability of advice and discretionary decisions for customers entitled to rely on its judgement
10	Clients' assets	arrange adequate protection for clients' assets when responsible for them
11	Relations with regulators	deal with regulators openly and cooperatively and disclose anything they would reasonably expect notice of
12	Consumer Duty	act to deliver good outcomes for retail customers

The Principles apply to firms. The conduct rules in COCON apply to individuals, and mirror several Principles:

Individual conduct rule (COCON 2.1)	Senior manager rule (COCON 2.2)
1 Act with integrity	SC1 Take reasonable steps to ensure the business you are responsible for is controlled effectively
2 Act with due skill, care and diligence	SC2 ...complies with the regulatory system
3 Be open and cooperative with the FCA, PRA and other regulators	SC3 ...delegates only to an appropriate person and oversee the delegation
4 Pay due regard to customers' interests and treat them fairly	SC4 Disclose appropriately any information the FCA or PRA would reasonably expect notice of
5 Observe proper standards of market conduct
6 Act to deliver good outcomes for retail customers

Conduct of business rules

Detailed conduct rules sit in the business sourcebooks: COBS (investments), MCOB (mortgages and home finance), ICOBS (insurance) and BCOBS (banking). Common themes are fair, clear and not misleading communications (for example COBS 4.2.1R), disclosure before sale, suitability of advice and fair handling of customers in difficulty.