22 October 2020

The Conduct Rules will come into force for all staff at solo-regulated FCA firms on 31 March 2021. The Rules already apply to Senior Managers and Certification Staff, but from this date almost all other staff within firms will have to comply with these new standards.

The FCA has consistently emphasised the importance of these Rules, which it sees as establishing a baseline level of conduct and good behaviour for everyone doing financial services work, with the aim of reinforcing positive working cultures across the sector. The FCA identified the implementation of the Conduct Rules as an area that the banking sector did not carry out particularly well, and therefore this has been given particular focus in the extension of SMCR to all solo-regulated firms.

Further details on the Rules themselves and how they apply to Senior Managers, Certification Staff and other staff in the Guide for FCA solo-regulated firms can be found here.

Here are our most frequently asked questions about the implementation of the Rules.

1. Can we use online training to deliver training on the Conduct Rules?

Yes. Firms are obliged to train their staff on the Conduct Rules and training can be delivered online. Many firms will choose to do this online, particularly with current restrictions on face-to-face meetings.

The Rules themselves appear straightforward, and there may be a temptation to give a metaphorical shrug of the shoulders and assume that all staff will already comply with these requirements. However, the FCA has emphasised the need to think carefully about the different roles performed by staff, and to make the Rules relevant for them. Generic online training may not achieve that goal. Staff will be expected to know the Rules and to understand what they means for their day-to-day work. The FCA’s desired outcome is the successful embedding of common standards of good behaviour, and that can only be demonstrated if the training is suitably tailored.

2. Are contractors caught by the Rules?

Some contractors may potentially be caught.

Firms will be familiar with the concept of 'ancillary staff', such as receptionists, reprographics staff, security guards and others, who are outside the scope of the Rules.

More difficult questions arise in relation to staff who are not employees but who are actively involved in the firm’s work. This is because the term 'employee' has a broad meaning for SMCR purposes, which is wider than the usual concept in employment law. A Conduct Rules employee also includes an individual who:

  • personally provides services to the employer under an arrangement made with the employer and the person providing the services, or another person; and
  • is subject to supervision, direction or control by the employer as to the manner in which those services are provided.

That could capture agency workers or employees on secondment from another organisation.

The definition could also capture some contractors, depending on the working arrangements in place. However, true self-employed contractors may not be obliged to work personally (if they can appoint a substitute) and generally would have autonomy over the way in which those services are performed, so would not be subject to the direction and control of an employer as to the manner in which those services are provided. That may take self-employed contractors outside the scope of the Rules. However, the arrangements with contractors and atypical workers will need to be scrutinised carefully to assess whether they fall within this definition.

3. Do the rules apply to staff who are employed overseas?

It will depend on the individual’s role and the location of their employer.

The Conduct Rules apply on a worldwide basis to certain senior individuals, including Material Risk Takers, Senior Managers and NEDs.

For other staff in a UK firm, the Conduct Rules apply to work carried out in the UK, relating to both regulated and unregulated activities. They also apply to activities carried out by an employee of the firm from outside the UK, where the employee has contact with UK clients. Conversely, an employee of that UK firm based overseas who does not deal with UK clients will not have to comply with the Conduct Rules.

For a UK branch of an overseas firm, the Conduct Rules only apply to conduct to the extent that it is performed by a person who is working for the UK branch.

For overseas firms without a UK branch, the Conduct Rules do not apply to staff of that firm, even if the individual deals with a UK customer.

There are different rules for claims management companies (which are summarised in the FCA’s Guide).

4. When and how do we need to report breaches of the Conduct Rules?

For Senior Managers, if you have taken disciplinary action as a result of a Conduct Rule breach then you would be obliged to report that to the FCA as soon as reasonably practicable and within seven days.

For other staff (including Certification Staff), the obligation is to report disciplinary action annually, using REP08. If no action has been taken, the report asks firms to confirm that.

The report must contain details of disciplinary action taken by the firm during the reporting period, where the reason for taking the disciplinary action amounts to a breach of the Conduct Rules. The regulator is likely to view that as having wide application. It has confirmed, for example, in a letter from Megan Butler, Executive Director of Supervision at the FCA, to the Women and Equalities Select Committee that 'sexual harassment and other forms of non-financial misconduct can amount to a breach of our Conduct Rules.'

The first REP008 for solo-regulated firms is due by 2 November 2020. However, there is currently no requirement to include Conduct Rule breaches for non-regulated roles in that report, as the Conduct Rules will not apply to that group until March 2021.

5. What do firms need to do between now and 31 March 2021?

There are a number of key tasks which need to be completed before the implementation deadline. These include:

  • Ensuring that you have senior management engagement in the implementation of the Conduct Rules. The FCA has identified active engagement by senior management as a key positive indicator for a successful implementation programme
  • Identify those staff who will be caught by the Conduct Rules, and those ancillary staff to whom the Conduct Rules will not apply
  • Understand the Conduct Rules training and reporting requirements for Senior Managers and all other staff, and determine how breaches will be identified and reported
  • Consider how staff will be trained so that they understand how the Conduct Rules apply to them in their roles
  • Consider how you will measure the effectiveness of your Conduct Rule implementation programme, so that this can be articulated to the regulator if needed.

If you have any questions about this article, please contact James Green or your usual Burges Salmon contact.

Key contact

James Green

James Green Director

  • Employment
  • Financial Services
  • Employment Disputes

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