PRIN 2A.2 Cross-cutting obligations

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.