PRIN Principles for Businesses

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PRIN 1

Introduction

PRIN 1.1

Application and purpose

  • 01/12/2004

Application

PRIN 1.1.1

handbook-guidance
The Principles (see PRIN 2) apply in whole or in part to every firm. The application of the Principles is modified for firms conducting MiFID business, incoming EEA firms, incoming Treaty firms, UCITS qualifiers and AIFM qualifiers. PRIN 3 (Rules about application) specifies to whom, to what and where the Principles apply.

Link to fit and proper standard in the threshold conditions

PRIN 1.1.4

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In substance, the Principles express the main dimensions of the "fit and proper" standard set for firms in threshold condition 5 (Suitability), although they do not derive their authority from that standard or exhaust its implications. Being ready, willing and organised to abide by the Principles is therefore a critical factor in applications for Part 4A permission, and breaching the Principles may call into question whether a firm with Part 4A permission is still fit and proper.

Taking group activities into account

PRIN 1.1.5

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Principles 3 (Management and control), 4 (Financial prudence) and (in so far as it relates to disclosing to the appropriate regulator) 11 (Relations with regulators) take into account the activities of members of a firm's group. This does not mean that, for example, inadequacy of a group member's risk management systems or resources will automatically lead to a firm contravening Principle 3 or 4. Rather, the potential impact of a group member's activities (and, for example, risk management systems operating on a group basis) will be relevant in determining the adequacy of the firm's risk management systems or resources respectively.

Standards in markets outside the United Kingdom

PRIN 1.1.6

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As set out in PRIN 3.3 (Where?), Principles 1 (Integrity), 2 (Skill, care and diligence) and 3 (Management and control) apply to world-wide activities in a prudential context. Principle 5 (Market conduct) applies to world-wide activities which might have a negative effect on confidence in the UK financial system. In considering whether to take regulatory action under these Principles in relation to activities carried on outside the United Kingdom, the appropriate regulator will take into account the standards expected in the market in which the firm is operating. Principle 11 (Relations with regulators) applies to world-wide activities; in considering whether to take regulatory action under Principle 11 in relation to cooperation with an overseas regulator, the appropriate regulator will have regard to the extent of, and limits to, the duties owed by the firm to that regulator. (Principle 4 (Financial prudence) also applies to world-wide activities.)

PRIN 1.1.6A

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PRIN 4 (Principles: MiFID Business) provides guidance on the application of the Principles to MiFID business.

Consequences of breaching the Principles

PRIN 1.1.7

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Breaching a Principle makes a firm liable to disciplinary sanctions. In determining whether a Principle has been breached it is necessary to look to the standard of conduct required by the Principle in question. Under each of the Principles the onus will be on the appropriate regulator to show that a firm has been at fault in some way. What constitutes "fault" varies between different Principles. Under Principle 1 (Integrity), for example, the appropriate regulator would need to demonstrate a lack of integrity in the conduct of a firm's business. Under Principle 2 (Skill, care and diligence) a firm would be in breach if it was shown to have failed to act with due skill, care and diligence in the conduct of its business. Similarly, under Principle 3 (Management and control) a firm would not be in breach simply because it failed to control or prevent unforeseeable risks; but a breach would occur if the firm had failed to take reasonable care to organise and control its affairs responsibly or effectively.

PRIN 1.1.8A

handbook-guidance
The Principles are also relevant to the PRA's powers of information-gathering, to vary a firm's Part 4A permission, and of investigation and intervention, and provide a basis on which the PRA may apply to a court for an injunction or restitution order or require a firm to make restitution.
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PRIN 1.1.9

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Some of the other rules and guidance in the Handbook deal with the bearing of the Principles upon particular circumstances. However, since the Principles are also designed as a general statement of regulatory requirements applicable in new or unforeseen situations, and in situations in which there is no need for guidance, the appropriate regulator's other rules and guidance should not be viewed as exhausting the implications of the Principles themselves.

PRIN 1.2

Clients and the Principles

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Characteristics of the client

PRIN 1.2.1

handbook-guidance
Principles 6 (Customers' interests), 7 (Communications with clients), 8 (Conflicts of interest), 9 (Customers: relationships of trust) and 10 (Clients' assets) impose requirements on firms expressly in relation to their clients or customers. These requirements depend, in part, on the characteristics of the client or customer concerned. This is because what is "due regard" (in Principles 6 and 7), "fairly" (in Principles 6 and 8), "clear, fair and not misleading" (in Principle 7), "reasonable care" (in Principle 9) or "adequate" (in Principle 10) will, of course, depend on those characteristics. For example, the information needs of a general insurance broker will be different from those of a retail general insurance policyholder.

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PRIN 2

The Principles

PRIN 2.1

The Principles

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PRIN 2.1.1

handbook-rule

The Principles

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PRIN 3

Rules about application

PRIN 3.1

Who?

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PRIN 3.1.1

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PRIN applies to every firm, except that:

  1. (1) for an incoming EEA firm or an incoming Treaty firm, the Principles apply only in so far as responsibility for the matter in question is not reserved by an EU instrument to the firm's Home State regulator;
  2. (2) for an incoming EEA firm which is a CRD credit institution without a top-up permission, Principle 4 applies only in relation to the liquidity of a branch established in the United Kingdom;
  3. (3) for an incoming EEA firm which has permission only for cross border services and which does not carry on regulated activities in the United Kingdom, the Principles do not apply;
  4. (4) for a UCITS qualifier and AIFM qualifier, only Principles 1, 2, 3, 7 and 9 apply, and only with respect to the activities in PRIN 3.2.2 R (Communication and approval of financial promotions);
  5. (5) PRIN does not apply to an incoming ECA provider acting as such; and
  6. (6) PRIN does not apply to a firm in relation to its carrying on of auction regulation bidding.

PRIN 3.1.2

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COBS 1 Annex 1 and the territorial guidance in PERG 13.6 all contain guidance that is relevant to the reservation of responsibility to a Home State regulator referred to in PRIN 3.1.1 R (1).

PRIN 3.1.3

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PRIN 3.1.1 R (2) reflects article 156 of the CRD which provides that the Host State regulator retains responsibility in cooperation with the Home State regulator for the supervision of the liquidity of a branch of a CRD credit institution.

PRIN 3.1.4

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PRIN 3.1.1 R (3) puts incoming EEA firms on an equal footing with unauthorised overseas persons who utilise the overseas persons exclusions in article 72 of the Regulated Activities Order.

PRIN 3.1.6

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A firm will not be subject to a Principle to the extent that it would be contrary to the UK's obligations under an EU instrument.

PRIN 3.1.7

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PRIN 4 provides specific guidance on the application of the Principles for MiFID business.

PRIN 3.2

What?

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PRIN 3.2.1

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PRIN applies with respect to the carrying on of:

  1. (1) regulated activities;
  2. (2) activities that constitute dealing in investments as principal, disregarding the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc); and
  3. (3) ancillary activities in relation to designated investment business, home finance activity, insurance mediation activity and accepting deposits.

PRIN 3.2.3

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Principles 3, 4 and (in so far as it relates to disclosing to the appropriate regulator ) 11 (and this chapter) also:

  1. (1) apply with respect to the carrying on of unregulated activities (for Principle 3 this is only in a prudential context); and
  2. (2) take into account any activity of other members of a group of which the firm is a member.

PRIN 3.3

Where?

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PRIN 3.3.1

handbook-rule

Territorial application of the Principles

PRIN 3.4

General

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Reference to "regulators" in Principle 11

PRIN 3.4.5

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Where Principle 11 refers to regulators, this means, in addition to the appropriate regulator, other regulators with recognised jurisdiction in relation to regulated activities, whether in the United Kingdom or abroad.

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PRIN 4

Principles: MiFID business

PRIN 4.1

Principles: MiFID business

  • 01/11/2007

PRIN 4.1.1

handbook-guidance
PRIN 3.1.6 R ensures that the Principles do not impose obligations upon firms which are inconsistent with an EU instrument. If a Principles does purport to impose such an obligation PRIN 3.1.6 R disapplies that Principle but only to the extent necessary to ensure compliance with European law. This disapplication has practical effect only for certain matters covered by MiFID, which are explained in this section.

Where?

PRIN 4.1.2

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Under PRIN 3.3.1 R, the territorial application of a number of Principles to a UK MiFID investment firm is extended to the extent that another applicable rule which is relevant to an activity has a wider territorial scope. Under PRIN 3.1.1 R, the territorial application of a number of Principles to an EEA MiFID investment firm is narrowed to the extent that responsibility for the matter in question is reserved to the firm's Home State regulator. These modifications are relevant to Principles 1, 2, 3, 6, 7, 8, 9 and 10. We have added further guidance in PERG on the ability of a Host State to impose conduct of business requirements (see Q67).

PRIN 4.1.3

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Principles 4, 5 and 11 will have the same scope of territorial application for MiFID business as for other business.

What?

PRIN 4.1.4

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  1. (1) Certain requirements under MiFID are disapplied for:
    1. (a) eligible counterparty business;
    2. (b) transactions concluded under the rules governing a multilateral trading facility between its members or participants or between the multilateral trading facility and its members or participants in relation to the use of the multilateral trading facility;
    3. (c) transactions concluded on a regulated market between its members or participants.
  2. (2) Under PRIN 3.1.6 R, these disapplications may affect Principles 1, 2, 6 and 9. PRIN 3.1.6 R applies only to the extent that the application of a Principle would be contrary to the UK's obligations under a Single Market Directive in respect of a particular transaction or matter. In line with MiFID, these limitations relating to eligible counterparty business and transactions under the rules of a multilateral trading facility or on a regulated market only apply in relation to a firm's conduct of business obligations to its clients under MiFID. They do not limit the application of those Principles in relation to other matters, such as client asset protections, systems and controls, prudential requirements and market integrity. Further information about these limitations is contained in COBS 1 Annex 1.
  3. (3) Principles 3, 4, 5, 7, 8, 10 and 11 are not limited in this way.

PRIN 4.1.5

handbook-guidance
Although Principle 8 does not apply to eligible counterparty business, a firm will owe obligations in respect of conflicts of interest set out in SYSC 10 which are wider than those contained in Principle 8 in that they apply to eligible counterparty business.

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Transitional Provisions and Schedules

PRIN TP 1

Transitional provisions

PRIN TP 1.1

PRIN Sch 1

Record Keeping Requirements

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PRIN Sch 1.1

handbook-guidance

PRIN Sch 2

Notification requirements

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PRIN Sch 2.1

handbook-guidance

PRIN Sch 2.2

handbook-guidance

PRIN Sch 3

Fees and other required payments

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PRIN Sch 3.1

handbook-guidance

PRIN Sch 6

Rules that can be waived

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PRIN Sch 6.1B

handbook-guidance
As a result of section 138A of the Act (Modification or waiver of rules) the PRA has power to waive all its rules, other than rules made under section 137O (Threshold condition code). However, if the rules incorporate requirements laid down in European directives, it will not be possible for the PRA to grant a waiver that would be incompatible with the United Kingdom's responsibilities under those directives.
  • 01/04/2013

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