Conduct Rules Explained: Who They Apply To and What They Require

The Conduct Rules are the third pillar of the SMCR, and the one with by far the broadest reach — covering almost every person at a regulated firm, not just SMF holders and Certified Persons. This guide sets out what the rules actually say, who they apply to, and how breaches are assessed. For guidance on actually training staff on the Conduct Rules, our sister practice FD Capital has a dedicated guide on delivering training that changes behaviour, which we’d point you to directly rather than duplicate here.

Two Tiers of Conduct Rules

The Conduct Rules split into two tiers. The Individual Conduct Rules apply to almost every employee at a regulated firm whose role isn’t purely ancillary — a materially broader population than either the SMF or Certification regimes cover. The Senior Manager Conduct Rules apply specifically to SMF holders, in addition to the Individual Conduct Rules, reflecting the heightened standard the SMCR expects of individuals carrying personal regulatory accountability.

Rule	Requirement	Applies To
Individual Conduct Rule 1	Act with integrity	Almost all staff
Individual Conduct Rule 2	Act with due skill, care and diligence	Almost all staff
Individual Conduct Rule 3	Be open and cooperative with regulators	Almost all staff
Individual Conduct Rule 4	Pay due regard to customer interests and treat them fairly	Staff dealing with customers
Individual Conduct Rule 5	Observe proper standards of market conduct	Staff involved in market activity
Senior Manager Conduct Rule 1	Take reasonable steps to ensure the business is controlled effectively	SMF holders
Senior Manager Conduct Rule 2	Take reasonable steps to ensure the business complies with regulatory requirements	SMF holders
Senior Manager Conduct Rule 3	Take reasonable steps to ensure delegated responsibilities are appropriately overseen	SMF holders
Senior Manager Conduct Rule 4	Disclose appropriately any information the FCA or PRA would reasonably expect notice of	SMF holders

Why the Senior Manager Conduct Rules Matter Specifically to Recruitment

The Senior Manager Conduct Rules are, in substance, a more granular expression of the same Duty of Responsibility that runs through every guide on this site — reasonable steps to control the business, ensure compliance, oversee delegation, and disclose appropriately to regulators. What makes them worth understanding specifically, rather than treating as background to the Duty of Responsibility, is that breaches of the Senior Manager Conduct Rules are assessed and reported to the FCA through a distinct notification process, separate from an SMF holder’s Statement of Responsibilities and separate from any Form A process. A candidate’s history of Conduct Rules breaches — their own, or their oversight of others’ — is a specific line of enquiry in a properly run fitness and proper assessment.

Who Is Exempt

The Conduct Rules don’t apply universally. Staff performing purely ancillary roles — reception, security, catering, and other functions with no connection to the firm’s regulated activities — fall outside the regime entirely. This exemption is narrower than firms sometimes assume: a role with any genuine connection to regulated activity, even a support function, typically falls inside the Conduct Rules’ scope, and firms that draw the ancillary-role line too generously risk leaving staff untrained and unassessed against a regime that actually applies to them.

How Breaches Are Actually Assessed

A Conduct Rules breach isn’t assessed the same way as a criminal offence, requiring intent or knowledge — the standard is closer to whether a reasonable person in that position, with that role’s responsibilities, would have acted as the individual did. This means a breach can occur through carelessness or poor judgement, not only through deliberate wrongdoing, which is precisely why the Individual Conduct Rules extend as broadly as they do — the framework is trying to embed a baseline standard of conduct across the whole regulated workforce, not simply catch deliberate misconduct at senior level.

Firms are required to notify the FCA when they determine a Conduct Rules breach has occurred and disciplinary action results, and to report this as part of their annual regulatory returns even where it doesn’t. This creates a running record that both the firm’s own governance and, over time, the regulator’s supervisory view can draw on — another reason a candidate’s Conduct Rules history is a genuine, checkable part of any thorough fitness and proper assessment.

What This Means for SMF Recruitment Specifically

Beyond the general Individual Conduct Rules that apply to any candidate joining a regulated firm, an incoming SMF holder needs genuine, practical fluency in the Senior Manager Conduct Rules specifically — not simply an awareness that they exist, but a clear, demonstrable understanding of what “reasonable steps” actually looks like in relation to the specific area they’ll be accountable for. This is exactly the same standard we test for throughout our designation guides in relation to the Duty of Responsibility, because the Senior Manager Conduct Rules and the Duty of Responsibility are, in practice, two expressions of the same underlying accountability.