The Financial Conduct Authority (FCA) has published Policy Statement 18/18 (PS18/18) regarding a summary of the industry codes of conduct and feedback on FCA Principle 5.
This PS summarises the feedback received on Consultation Paper 17/37 (CP17/37) on Industry Codes of Conduct and Discussion Paper on FCA Principle 5 for businesses. The FCA outlines its final policy and Handbook amendments on the FCA’s approach to the recognition of codes of conduct in unregulated markets, including the process and criteria for doing so, for the purposes of the Senior Managers & Certification Regime (SM&CR).
PS18/18 also summarises feedback received on the discussion chapter of CP17/37 which looked at extending the application of Principle 5 of the FCA’s Principles for Businesses, so that authorised firms would be required to observer proper standards of market conduct for their unregulated activities.
Summary of feedback on CP17/37:
• Overall respondents were supportive of the FCA’s aim to improve transparency about the status of market codes, and to be clear on our approach given the clear links included within the Senior Managers & Certification Regime (SM&CR)
• Some respondents were concerned that recognising codes may imply a ‘quasi-legal status’ that undermines their voluntary nature, which may then affect the development and style of future codes
• There were some concerns that a change to Principle 5 of the FCA Principles for Businesses would bring in regulation ‘by the backdoor’, without the appropriate parliamentary scrutiny of legislative changes to the Regulated Activities Order (RAO). Some firms felt this sort of change was unnecessary given the SM&CR
The FCA responded to this within the following steps:
• Establishing a process through which certain codes in priority areas can be recognised, to encourage but not mandate their use. However, the FCA is making some changes to the process and criteria for recognition, in light of responses received.
• To publicly consult on each panel decision to recognise a code, to provide transparency to market participants and let people share views if they disagree that a market code does represent proper standards within a particular unregulated market or activity
• To not consult on extending principle 5 for businesses to wholly unregulated activities, but will continue to consider the case for this considering the effectiveness of the code recognition process and other FCA priorities
The FCA does not expect firms to make significant changes to their systems and controls in light of its final handbook changes and approach. Authorised firms and the individuals subject to SM&CR obligations already need to consider ‘proper standards of market conduct’ and many already follow specific industry market codes. As a result of the policy within this PS, firms and individuals do not need to follow any particular codes but they may find it helpful to look at FCA-recognised codes in considering the proper standards of market conduct for their activities.
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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.