FCA Principle 11 Reporting Requirements

Posted by

Rochelle Sampy

on 06 Feb 2024

In the UK, regulated entities and individuals within the financial sector are expected to maintain transparent and cooperative relations with the FCA.

FCA Principle 11

In the UK, regulated entities and individuals within the financial sector are expected to maintain transparent and cooperative relations with the FCA. 

The FCA's Principle 11 codifies this requirement. It allows the timely disclosure of information pertinent to regulated and unregulated activities of a regulated firm, including those conducted by its group members.

FCA Principle 11 Reporting Requirements

We review the 12 FCA Principles for Business, highlight how principle 11 affects regulated firms in the UK, and evaluate the critical reporting requirements under this principle. Additionally, we delve into some key considerations that firms need to consider when making notifications to the FCA.

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What are the FCA principles for business?

The FCA Handbook mandates that regulated firms comply with 12 fundamental business principles. These principles are essential to the regulator's goal of upholding market integrity and protecting consumers.

The FCA's Principles for Business (PRIN) have a global scope, impacting any activities that could adversely affect the UK financial system. Should a firm violate these principles, the FCA has the authority to enforce disciplinary measures, including revoking the firm's operating authorisation.

All authorised firms must be familiar with and implement these 12 principles to ensure adherence to the established standards. The FCA focuses on these principles as outlined in PRIN 2.1 of the FCA handbook:

  1. Integrity: Conducting business with honesty and integrity.
  2. Skill, Care, and Diligence: Operating with appropriate skill, care, and diligence.
  3. Management and Control: Maintaining proper management and control of business.
  4. Financial Prudence: Ensuring financial prudence in operations.
  5. Market Conduct: Upholding appropriate standards of market conduct.
  6. Customers' Interests: Acting in the best interests of customers.
  7. Communications with Clients: Ensuring communications are transparent, fair, and not misleading.
  8. Conflicts of Interest: Managing conflicts of interest fairly.
  9. Customers: Relationships of Trust: Maintaining trustworthy relationships with customers.
  10. Clients' Assets: Safeguarding and properly administering clients' assets.
  11. Relations with Regulators: Maintaining an open and cooperative relationship with regulators.
  12. Consumer Duty: Ensuring that firms protect and provide consumers with good outcomes when dealing with them.

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How does Principle 11 impact UK-regulated firms?

By stating that a firm must disclose any information relating to the firm that the FCA would reasonably expect, Principle 11 underlines the importance of transparency and cooperation between regulated firms and the FCA.

Principle 11 impacts firms by highlighting the importance of robust systems and controls to identify reportable issues and promptly communicate them to the FCA.

This often involves:

  • Establishing clear internal guidelines on what constitutes a reportable issue.
  • Training staff to identify and report relevant matters.
  • Maintaining open communication channels with the FCA.
  • Making it easier for senior management to monitor regulatory communications closely, ensuring they are consistent and focused on the relevant issues.
  • Ensuring compliance and human resources departments work together if notifications involve disciplinary actions against staff. This ensures consistency in the information provided to the regulator and affected employees.

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Why should firms understand Principle 11?

This obligation to notify the FCA aims to ensure that they remain well-informed of firms' and individuals' adherence to regulatory standards and can swiftly address any issues, such as potential consumer harm.

Moreover, this duty of forthrightness and engagement isn't limited to firms; it also personally binds individuals such as 'approved persons' who perform controlled functions or those governed by the Senior Managers and Certification Regime.

Non-compliance with Principle 11 can lead to significant repercussions, including fines, reputational damage, and, in severe cases, revocation of the firm's licence to operate.

Adhering to these requirements ensures regulatory compliance and demonstrates a firm's commitment to maintaining high standards of conduct. It is also essential to see that other breaches can accompany breaches of principle 11.

Notable examples of the repercussions of failing to comply are demonstrated in these three cases:

2015: Deutsche Bank - £227 million

In 2015, the FCA imposed its largest fine to date on Deutsche Bank AG for misconduct related to LIBOR and EURIBOR. The fine amounted to £226.8m, aggravated by Deutsche Bank misleading the regulator, potentially obstructing the investigation. The bank violated several principles, notably Principle 11, through dishonest, reckless, and delayed interactions with the FCA.

The situation worsened with the discovery of cultural issues at Deutsche Bank, encouraged by senior management, regarding the accuracy and completeness of communications with the FCA. The bank also misled the FCA about sharing a report produced by the German regulator, BaFin, falsely claiming BaFin's restrictions.

Furthermore, Deutsche Bank falsely attested that its LIBOR systems and controls were adequate despite the absence of such systems. The FCA's investigation was hindered by Deutsche Bank's failure to provide timely and accurate information.

Notably, the bank mistakenly destroyed 482 tapes of relevant telephone calls and provided misleading information about the existence of other records.

2015: The Co-operative Bank - public censure

The Co-operative Bank plc (Co-op Bank) received a public censure from the Financial Conduct Authority (FCA) for violating its Listing Rules. These rules mandate issuers to ensure that published information is accurate and not misleading, enabling investors to make well-informed decisions.

Co-op Bank also contravened Principle 11, which obliges firms to maintain transparency and cooperation with regulators and disclose any relevant information regulators reasonably expect to know.

Specifically, Co-op Bank neglected to inform the FCA or the Prudential Regulation Authority (PRA) about intended changes in two senior positions and the reasons for these changes from April 2012 to May 2013.

2018: Santander - £32 million

In 2018, the FCA fined Santander £32,817,800 for failing to process accounts and investments of deceased customers effectively. The bank breached Principles 3 and 6 by inadequately managing its probate and bereavement processes and failing to treat customers and their representatives fairly.

Additionally, Santander violated Principle 11 by not disclosing information about these issues to the FCA, including the number of affected customers and assets, and selectively providing information, thus falling short of the expected standards of openness and cooperation.

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What are the Principle 11 reporting requirements?

Deciding when to inform a regulator falls to the discretion of the firms or individuals involved. The FCA has laid out specific guidelines for firms regarding reportable matters in Chapter 15 of its Supervision Handbook, providing a clearer framework for this decision-making process.

These guidelines state that the matters which require notification, as per Principle 11, to the FCA can include:

  • Those requiring immediate notification (SUP 15.3), like matters that can cause harm to a firm's reputation or cause it to fail to meet one or more of its threshold conditions. This also includes:
    - any changes to a firm's business
    - a significant breach of an FCA rule
    - any legal actions brought against the firm (civil, criminal, or disciplinary)
    - an organisational event related to bankruptcy, winding up, or insolvency
    - evidence that an employee has committed fraud
    - any substantial or possible violation of competition law.
  • Those involving a change of core information requirements (SUP 15.5), which require advance notification, are related to a firm's name, phone number, or principal place of business in the UK.
  • Where a firm becomes aware that it has submitted false, misleading, inaccurate, or incomplete information (SUP 15.6) to the FCA.
  • Suspicious transactions or orders (SUP 15.10) when there is a sufficient indication that a transaction will fall under market abuse.
  • Any disciplinary action against individuals working for an SMCR firm, especially if the reason for this action is any action, failure to act, or circumstance that gives rise to a significant breach of the Code of Conduct rules (SUP 15.11) within the FCA's COCON handbook.
  • When there are changes to the membership of the management body (SUP 15.16) of a MiFID Investment firm, UK domestic firm, or an SMCR firm.

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Key considerations for reporting under Principle 11

Firms frequently face penalties for delivering false, misleading, incomplete, or delayed information, whether intentionally or not.

To make it easier, here are the three main guidelines to follow:

1. Maintain thorough administrative records

Always act swiftly and professionally in interactions with the FCA. Ensure constant, unimpeded communication and avoid unnecessary delays.

When a firm is required to notify a regulator under any notification rule, this must be done in writing in English. The notification should use the specified form for that rule or, if none is specified, the standard notification form in Chapter 15 of the FCA's Supervision Handbook.

After submitting the initial notification, it is important to keep detailed records of all communications with the regulator, including notes from conversations and meetings, which participants should review and confirm.

After discussions, consider sending a summary email to the regulator to confirm your understanding and any agreed-upon actions.

2. Always be accurate and truthful

Rigorously verify the accuracy of all information and statements given to the FCA, especially those concerning crucial financial system aspects like IBOR, anti-money laundering, or fraud.

The information provided should be detailed enough to allow the regulators to conduct their evaluation and ask questions. This is vital even if your firm or clients are merely incidental victims. While the FCA recognises the difference between reckless inaccuracies and intentional dishonesty, you must strive to avoid both.

3. Encourage a culture of compliance

Senior managers should encourage a culture among their teams that emphasises the importance of FCA compliance. On the same note, authorised persons must resist any pressure from senior management that downplays the significance of FCA compliance. Remember, the FCA values timely and voluntary reporting.

DEPP 6.7 of the FCA handbook also states that a discount for early settlement is available in certain cases, such as a 30% discount if the agreement is reached during stage 1 of proceedings.

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How to meet the FCA's expectations?

Understanding and adhering to the reporting requirements of Principle 11 is a critical aspect of a firm's operations within the UK's financial regulatory framework.

By fostering an open and cooperative relationship with the FCA, firms can ensure they operate transparently and compliant, contributing to the overall health and integrity of the financial markets.

The quality of the regulatory relationship often mirrors the firm's culture. While it's unnecessary to agree to every request from a regulator, and such requests should be reasonable and proportionate, the general approach should be to report issues as soon as possible.

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