As part of ‘reducing the regulatory burden’, and as outlined in its letter to the Prime Minister on 16th January this year, the FCA has outlined the first steps in its plans to review Handbook provisions. The first steps include reviewing expectations for mortgages and lending, and exploring the simplification of savings account communications. It will also review parts of its credit advertising rules, such as lengthy terms and conditions and the disclosure of Annual Percentage Rates (APRs). However, there was clear feedback to the FCA’s call for input that now is not the time for wholesale changes to its rules. The FCA will, therefore, continue to engage with industry and others to get the balance right, without a widespread overhaul.
The FCA plans to hold an in-person summit in summer 2025 to discuss these issues, and it will publish a further statement to outline its full programme of work in September 2025.
So, what is the FCA proposing to do or change?
Announcing a desire to address longstanding concerns from firms about the length and complexity of its rules and guidance, the FCA’s Feedback Statement FS25/2 includes provisions to:
- launching a ‘beta’ version of a new FCA Handbook website this summer;
- make it easier for consumer finance, investment and mortgage firms to navigate regulations by retiring more than 100 pages of outdated guidance;
- withdraw hundreds of supervisory publications “to address firms’ concerns about the volume of FCA communications they are expected to track” (e.g., review all Dear CEO letters and portfolio letters pre-dating the FCA’s 2022-25 strategy and withdraw them, subject to any exceptions, whilst keeping the documents publicly available);
- review current prescriptive disclosure rules to give firms more flexibility to tailor communications to customers’ needs and preferences (e.g., online and digital transactions); and
- revisit rules for businesses with customers outside the UK, for example looking at whether insurance firms need to apply UK rules for their overseas customers (expect a Discussion Paper this summer).
Proposals for the insurance sector
- In relation to insurance rules relating to overseas customers, the FCA will review the international application of its conduct of business rules in the insurance sector and intends to ask discussion questions on such scope in the insurance sector by summer 2025.
- Also, the FCA acknowledges that its Handbook definitions of retail customers and small and medium-sized enterprises (SMEs) are complicated and differ across sectors, which can lead to challenges for firms in applying FCA rules consistently. The FCA proposes to review these core definitions to facilitate understanding and simplify the application of its rules, aiming for more consistent definitions within the Handbook. The FCA will shortly consult on proposed changes to the definition currently used in the insurance sector to determine which SME customers need protecting under the rules applying to retail customers.
- Perhaps of the greatest interest to insurance distributors, the FCA will review the general insurance pricing practices reporting requirements.
Actions the FCA is committed to taking
- In its Discussion Paper on the regulation of commercial and bespoke insurance business, the FCA proposed options for simplifying the rules for insurance firms. It proposed to better align the balance between safeguarding small commercial customers and retail consumers (who benefit from the regulatory protections in the rules applying to those customers) and to encourage greater competitiveness in this market. After reviewing feedback, the FCA will consult by summer 2025 on these proposals.
- In light of some of the feedback to the call for input, the consultation will also propose further changes to FCA rules, including allowing firms greater flexibility over how often they review product value under the product governance rules and removing the specified minimum hours of training and development required for insurance employees. There will be some interested stakeholders who may ask why this is a ‘good thing’.
- The FCA will, alongside its planned consultation, seek views on limiting the application of conduct rules (such as the Duty’s requirements outside the UK), reviewing some of the more detailed and prescriptive product-specific rules in ICOBS, including those for packaged bank accounts and GAP insurance 9again, this may not be seen as a ‘good thing’ – the GAP rules were introduced for good reason), and offering funeral plan providers greater flexibility regarding how often they review products under the product governance rules.
- The FCA recognises smaller firms’ requests for more specific guidance tailored for smaller firms. The FCA plans, therefore, to start by piloting an approach for small firm guides in 2025. It will then consider whether it is appropriate to roll this out more broadly.
- In retiring outdated guidance later this year, this will include guidance related to the Treating Customers Fairly initiative. Firms may wish to try to retain copies of such guidance to assist ongoing Consumer Duty compliance.
- The FCA will explore options for reviewing the Senior Management Systems and Controls Sourcebook in its Handbook (SYSC). Over time, this has expanded significantly, and several respondents said it can be confusing.
- Perhaps of the greatest interest to insurance distributors, the FCA will:
- review the general insurance pricing practices reporting requirements (REP021); and
- consider how it could provide more certainty on its expectations under the Consumer Duty for non-customer-facing firms in retail distribution chains, including the sharing of information within the chain.