FCA publishes suite of proposals on reducing regulatory burdens to support growth

The FCA has issued four publications and invited feedback from the financial services sector to determine whether regulation could be streamlined or simplified to reduce the burden on firms and support growth, whilst continuing to prevent consumer harm.

The FCA publications consist of:

• a review of the requirements under the Consumer Duty following implementation, including a Call for Input;
• a Discussion Paper DP24/1 about the regulation of commercial and bespoke insurance business;
• a set of growth objective metrics and a report about the FCA’s secondary international competitiveness objective; and
• a Statement of Policy on cost benefit analyses.

After the Financial Services and Markets Act was granted royal assent in on June 29, 2023, Parliament set the FCA a secondary objective to support the international competitiveness of the UK economy and its growth in the medium to long term.

The FCA has previously been criticised for failing to strike an appropriate balance between regulating to protect consumers from harm, and supporting effective competition, innovation and investment within the UK financial services industry.

Addressing the BIBA annual conference in May 2024, BIBA CEO, Steve White, urged the FCA to reduce the “unacceptably high” regulatory burden faced by insurance brokers, citing research by London Economics that suggested regulation has cost brokers substantially and affected investment in, and growth by, the industry.

In its latest proposals and call for input, the regulator asked the industry to identify rules which could be removed or simplified if they overlap with the Duty. Reiterating its commitment to support economic growth and competitiveness, the FCA cited the implementation of the Consumer Duty as opportunity to move to a clear, outcomes-based approach to streamline regulation.  

In what many will view as a dilution of the Handbook, the regulator commented: “reducing the complexity of the FCA’s rulebook could lower costs for firms, encourage innovation and help support the risk appetite needed to support growth, ultimately boosting international competitiveness and the economy over the long-term”. 

Review of FCA requirements following the introduction of the Consumer Duty

The FCA is set to review the requirements under the Consumer Duty following its implementation and has requested views on whether, where, and how, it can refine and simplify its retail conduct rules and guidance.

In particular, the FCA seeks to address “potential areas of complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit”, and to identify ways to “include appropriate flexibility” in its rules to “be responsive to future changes and innovation”.

Whilst primarily focused on the retail conduct rules and guidance, the review also seeks views on the FCA’s wider rules and guidance, inviting comments on issues such as:

• Which detailed rules or guidance could be simplified to rely on high-level rules, or have interactions with other rules which could be clarified?
• How any steps to simplify the rules and guidance affect the FCA’s statutory objectives.
• The appropriate balance between high-level and more detailed rules.
• The potential benefits and costs from simplifying the rules.

The FCA also wants to understand how different types of firms may be affected by changes to its approach to regulation and rule writing. Having committed to a post-implementation review of the Consumer Duty, the FCA is not seeking responses with suggestions for changes to the Duty, however.

Furthermore, the FCA is interested in views on how far it may be appropriate, and beneficial, to place greater reliance on the Consumer Duty in place of specific rules and guidance. For instance, where:

• similar materials relate to broadly equivalent requirements or expectations of conduct;
• the FCA may be able to achieve substantially the same consumer outcomes while giving firms more flexibility and greater ability to innovate; and
• there may be a lack of clarity on how requirements under the Duty and under other rules interact.

For instance, provisions in the Dispute Resolution: Complaints (DISP) Sourcebook (DISP 1.3.3R and 1.3.6G), the Consumer Duty requirements in the Principles for Businesses Sourcebook (PRIN 2A.2.5R), and rules and guidance in PRIN 2A.10), require firms to take appropriate action once consumer harm is identified and would, arguably, lead to broadly the same outcome.

Regulation of commercial and bespoke insurance business

As reported in last week’s article, the FCA also published a Discussion Paper DP24/1 regarding the regulation of commercial and bespoke insurance business, as it seeks to make changes to achieve a balance between safeguarding customers and reducing regulatory costs for firms and increasing the competitiveness of the commercial market.

The Discussion Paper includes sections looking at:

• determining which rules apply to commercial insurance, including a comparison of some differing definitions of commercial clients based on balance sheet size / turnover / no. of staff etc., and options to change the FCA’s current ‘SME’ classification;
• how the rules currently apply where more than one firm is responsible for manufacturing insurance products (so where there are co-manufacturers);
• the application of ICOBS to co-manufacturing;
• some of the challenges around how the PROD rules apply to bespoke insurance products, and the ‘bespoke products’ exclusion.

Next Steps

UKGI Group strongly recommends that firms respond to the Call for Input and ensure that their voices are heard and can be considered by the regulator going forward. The recently issued proposals represent a significant opportunity for firms to share their views and play an active part in shaping the future Handbook and regulatory landscape.

Responses to the Call for Input Review of FCA requirements following the introduction of the Consumer Duty must be sent to the FCA by 31st October 2024.

Responses to the FCA Discussion Paper DP24/1: Regulation of commercial and bespoke insurance business are requested by 16th September 2024- a short response time considering the holiday period.

Additional Support

Given the continued focus on firms’ implementation of, and compliance with, the Consumer Duty, why not learn more as part of annual CPD requirements? The Development Zone has a range of relevant courses suitable for all roles and levels, including:

‘Consumer Duty: The Four Outcomes’ (Multi-module course)

‘Consumer Harm: Identification, Prevention, and the Consumer Duty’ (Multi-module course)

‘Vulnerability: Identifying, Understanding and Supporting Vulnerable Customers in Financial Services’(Multi-module course)

‘Consumer Barriers within the Financial Services’

New to the Development Zone? Discover all of the system features, with no commitment, by signing up to a FREE 14-week trial at: Free Trial | The Aviva Development Zone (mydevelopment.zone). Or, get in touch with the team at devzone@ukgigroup.com.