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Fortunately, the best way that advisors can meet these requirements is by closely monitoring their copy of the FCA Handbook, and living through its values. Hand-in-hand with a competency evaluation, these high standards help to maintain both the integrity of the industry, and the financial markets.
The Financial Conduct Authority Handbook is a standards guide for financial advisors, existing to ensure uniformity across products, services, ethics, customer service and much more.
What is the FCA Handbook?
The FCA Handbook is a set of rules, provisions and powers governing the financial services industry in the UK. It follows the Financial Services and Markets Act (FSMA), introduced in 2000. Rules are regularly added to the handbook as the industry – and its technology – evolves.
Applying to all regulated financial firms, the FCA Handbook is a guide for registered and associated persons. Broker-dealers, bank employees, securities traders and more must all comply with the details of the FCA Handbook. In total, this includes over 42,000 businesses regulated, and a further 41,000 prudentially supervised.
It can be found online, where most regulated parties hold a subscription, or in print as a physical copy.
The Handbook promotes the FCA’s overall message to reduce and prevent serious financial harm, set standards in the industry and promote competition. Authorized firms must regularly submit reports to the regulator, and should expect audits, investigations, and possible penalties if they are found to be non-compliant.
What does the FCA Handbook contain?
The FCA Handbook contains various standards, sourcebooks and rules.
Standards
The FCA Handbook contains nine high–level standards:
- PRIN: principles for businesses– the underlying rules for every firm
- SYSC: senior management systems and controls– rues at a managerial level
- COND: threshold conditions– minimum criteria for being a registered firm
- APER: approved persons code of conduct– behavior expected from approved persons
- FIT: this is the test for becoming and retaining the title of an approved person
- FINMAR: financial stability and market confidence– prevention of short–selling
- TC: training, competence and record–keeping
- GEN: general provisions– requirements, disclosures and interpretation advice
- FEES: rues around compensation schemes, regulatory funding and financial ombudsman
The Handbook also contains information about prudential standards, which refer to the ways that regulated institutions should aim to prevent harmful events and protect the customer. Firms have liquidity requirements to ensure that they can withstand a high proportion of customers withdrawing their deposits at once, in the case of a natural disaster or war, for example. This provides greater protection against economic shocks.
The FCA works in conjunction with the Prudential Regulation Authority (PRA) to police this and reduce risk broadly within industry.
Sourcebooks
Various sourcebooks, including business and specialist sourcebooks also play their part in the FCA Handbook. These are overall business rules and more niche requirements that only apply to certain sectors respectively, such as:
- CASS: client assets sourcebook rules
- COLL: collective investment schemes sourcebook
- CONC: a specialist sourcebook guiding consumer credit activities
Structure of rules
Each sourcebook begins with its purpose– a reason for the rule’s inclusion into the book– and who it applies to. After the provisions of the rules are set out, there is a section for recordkeeping requirements, reporting requirements, fees, possible enforcement actions and exemptions.
The FCA Handbook makes a differentiation between rules and guidance. Rules are signified by an ‘R’ label, and are regulations which must be followed. Alternatively, guidance, ‘G’, is highly recommended, but not binding.
Using the FCA Handbook
Approved persons use the FCA Handbook to guide their systems, processes, trading and day to day decisions. Advisors must pay close attention to updates, which are typically published online, and implement new compliance standards on the timeline of the regulator.
Conduct rules
There were five established individual rules of conduct, but once Consumer Duty was introduced in 2023, it became the sixth. These rules govern the behavior of employees and associated persons across the industry:
- Integrity: upholding the values of the market
- Skill, care and due diligence: working with respect and thoughtfulness
- Cooperation with the regulators: pro-active relationship building for mutual trust
- Treat customers fairly: ensure advice is equally accessible and unbiased
- Observe proper standards of market conduct: act within the bounds of the rules
- Consumer duty: put the needs of the customer above profiteering or individual gain
FCA Handbook Compliance
In 2024, the FCA began its review process for its Handbook with a Call to Input. The regulator recognised that some of the rules were prescriptive, duplicative, or too complex, and some created costs which had little consumer benefit.
As the FCA Handbook continues to evolve, it’s important for advisors to place a close eye on its updates to ensure their continuous compliance.