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.

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.]

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.

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.

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

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

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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

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.

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.

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.

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.

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.