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MIGI 3.1 Principles for businesses

What are the Principles?

MIGI 3.1.1 G

The Principles apply to every firm. They are general statements of the main regulatory obligations of authorised firms. The Principles set out in simple terms the high level standards that all firms must meet. They express what is meant by the fit and proper standard set for firms. The rest of the Handbook contains more detailed requirements that expand on these standards.

MIGI 3.1.2 G

If your firm contravenes one or more of the Principles, it could face enforcement action. This could, for example, result in your firm's authorisation being removed.

Where are the relevant rules in the Handbook?

MIGI 3.1.3 G

The Principles are set out in the Principles for Businesses sourcebook (PRIN) and are also set out below:

The Principles

1

A firm must conduct its business with integrity.

2

A firm must conduct its business with due skill, care and diligence.

3

A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.

4

A firm must maintain adequate financial resources.

5

A firm must observe proper standards of market conduct.

6

A firm must pay due regard to the interests of its customers and treat them fairly.

7

A firm must pay due regard to the information needs of its clients, and communicate information to them in a way, which is clear, fair and not misleading.

8

A firm must manage conflicts of interests fairly, both between itself and its customers and between a customer and another client.

9

A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.

10

A firm must arrange adequate protection for clients' assets when it is responsible for them.

11

A firm must deal with its regulators in an open and cooperative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.

MIGI 3.2 Senior Management Arrangements, Systems and Controls

What are Senior management arrangements, systems and controls?

MIGI 3.2.1 G

Principle 3 requires firms to take reasonable care to organise and control their affairs responsibly and effectively. This Principle is amplified by our rules in the Senior Management Arrangements, Systems and Controls sourcebook (SYSC), which provides further details on what internal systems and controls we require regulated firms to have in place.

MIGI 3.2.2 G

This means that a firm must (in line with SYSC 2 and SYSC 3):

  1. (1)

    clearly apportion responsibilities amongst its directors and senior managers;

  2. (2)

    ensure the business and affairs of the firm can be adequately monitored;

  3. (3)

    allocate to the chief executive (if there is one), or a director or senior manager, the functions of dealing with the apportionment of responsibilities and overseeing the establishment and maintenance of systems and controls. This function may be allocated to one or more persons, but if your firm has a chief executive officer he must be one of them (or the only one if you appoint only one person);

  4. (4)

    make and keep updated a record of these arrangements (for example, in an organisational chart); and

  5. (5)

    take reasonable care to create and maintain such systems and controls as are appropriate to its business.

MIGI 3.2.3 G

The rules and guidance in SYSC 3.2 cover some of the main issues that a firm is expected to consider in establishing and maintaining the systems and controls appropriate to its business. These include:

  1. (1)

    the size of the firm, the scale and complexity of the business;

  2. (2)

    the need to counter the risk that the firm might be used to further financial crime; and

  3. (3)

    the need to establish and maintain compliance with regulatory requirements and record keeping.

MIGI 3.2.4 G

The rules in SYSC are to a large extent intended to ensure good business practice by firms. Therefore, if your firm's business is well-run and well-organised you should find that your firm should satisfy much of what is required by SYSC.

MIGI 3.2.5 G

We do not, therefore, expect the same kind of systems and controls in both small and large firms. The important point is that a firm's systems and controls should be fit for purpose given the size and the business of the firm. In the case of a sole trader, one person is responsible for all aspects of the firm, but we expect there to be adequate systems to allow that person to manage and monitor the firm.

MIGI 3.2.6 G

The following chapters of this Guide are also relevant:

Threshold conditions in Authorisation - Part I, Chapter 4