FRE1 · Industry, Regulation and Key Parties
LO5 is the most rule-dense part of FRE1 and it feeds straight into FRE2. Expect three kinds of question. First, objectives: which FCA or PRA objective a piece of work pursues. Second, the Handbook: which Principle a scenario breaches, which block or sourcebook holds a rule, and what R, G and E mean. Third, people and powers: who needs approval under SM&CR, what the firm must do to certify an adviser, which Conduct Rule applies, and which enforcement power fits the facts. Know the numbers that are now different from older study material: 12 Principles, 6 individual Conduct Rules, a 30% settlement discount and a six-month authorisation deadline.
12 min read7 sections
Checked against: Walbrook (formerly LIBF) FSRE specification v7 (July 2026), FRE1 LO5 (AC5.1-5.2); FSMA 2000 ss1B-1E, 2B, 2C, 2H, 3B, 19, 23, 55V, 56, 63F, 66A-66B, 166, 205-206, 382, 384, 404 (legislation.gov.uk); FCA Handbook PRIN 2.1.1R, PRIN 2A, COCON 2.1-2.2, SYSC 22 and 27, FIT 2, TC, MIPRU, CASS, SUP 15-16, DEPP 6.7, PERG (handbook.fca.org.uk); FCA SM&CR page (fca.org.uk); checked 11 Oct 2026. Independent prep, not endorsed by Walbrook (formerly LIBF).
Every FCA action must, so far as reasonably possible, be compatible with its strategic objective and advance at least one operational objective (FSMA 2000 s1B(1)). The PRA has a different set. Learn them side by side.
| Feature | FCA | PRA |
|---|---|---|
| Main objective | Strategic: ensuring the relevant markets function well (s1B(2)) | General: promoting the safety and soundness of PRA-authorised persons (s2B) |
| Further objectives | Operational: consumer protection (s1C), integrity of the UK financial system (s1D), effective competition in consumers' interests (s1E) | Insurance objective: appropriate protection for policyholders (s2C) |
| Secondary objectives | International competitiveness and growth (s1B(4A), from 29 Aug 2023) | Facilitating effective competition (s2H(1)(a)); international competitiveness and growth (s2H(1)(b), from 29 Aug 2023) |
| Regulates | Conduct of all firms; prudential standards of solo-regulated firms such as brokers | Prudential standards of banks, building societies, insurers and major investment firms |
| Typical work | Studying whether long-standing SVR borrowers pay too much (competition); fighting market abuse (integrity) |
Every note. Every question. One pass.
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| Responding to a bank's riskier lending plans |
The consumer protection objective aims at an appropriate degree of protection, not zero loss. Under s1C(2) the FCA must consider the differing risks of different products, consumers' differing experience, their need for timely and accurate advice, the general principle that consumers take responsibility for their decisions, and the care firms should give. The regulatory principles in s3B add proportionality: a burden should be proportionate to the benefits expected, which is why a sole-trader appointed representative does not need a bank's committee structure.
Trap: giving safety and soundness to the FCA, or treating the growth objective as primary. It is secondary and cannot override the others.
Takeaway: FCA: markets function well, via consumer protection, integrity and competition. PRA: safety and soundness. Both: secondary growth objective since 2023.
The FCA combines detailed rules with high-level Principles that are binding rules in their own right. A firm can be disciplined for breaching a Principle even where no detailed rule covers the point (PRIN 1.1.7G). Detailed rules support the Principles; they do not mark the outer edge of acceptable behaviour.
| No. | Principle | Scenario that breaches it |
|---|---|---|
| 1 | Integrity | Helping a client hide a past bankruptcy from a lender |
| 2 | Skill, care and diligence | A badly managed systems change |
| 3 | Management and control | No effective risk management or compliance oversight |
| 4 | Financial prudence | Inadequate financial resources |
| 5 | Market conduct | Market abuse |
| 6 | Customers' interests (treat customers fairly) | Fixing an overpayment error only for borrowers who complain |
| 7 | Communications with clients: clear, fair and not misleading | A two-year fix advertised as 'cheapest for the whole term' |
| 8 | Conflicts of interest | An undisclosed gift from a lender for more business |
| 9 | Customers: relationships of trust (suitability of advice) | Advice that does not fit the client's needs |
| 10 | Clients' assets | Client money mixed with the firm's own money |
| 11 | Relations with regulators | Not telling the FCA about an adviser inflating incomes |
| 12 | Consumer Duty: act to deliver good outcomes for retail customers (from 31 Jul 2023) | Steering customers to worse-value deals |
Where the Consumer Duty applies, Principles 6 and 7 are disapplied and Principle 12 with PRIN 2A takes over; for business outside the Duty, 6 and 7 still apply. Handbook provisions carry a letter: R for a rule (binding; private persons can sue for loss under FSMA 2000 s138D), G for guidance (not binding, but following it tends to show compliance) and E for an evidential provision.
Trap: answering '11 Principles' from older material, or treating guidance as binding law.
Takeaway: 12 Principles; 12 is the Consumer Duty. Principles are enforceable rules. R binds, G guides, E is evidential.
