The UK’s Financial Conduct Authority (FCA) has announced reforms to simplify its insurance rules and reduce costs for insurers while providing appropriate protection for small business customers, with further reforms planned for next year.
The FCA stressed that the final rules are intended to give insurers greater flexibility and responsibility, such as deciding how often product reviews are conducted and how much continuing professional development (CPD) employees should undertake.
Next year, the FCA plans to further amend its insurance rules and remove unnecessary requirements, including a review of the international applicability of its rules and consumer liability.
It also released proposals to benefit insurers and other companies, including technical changes to simplify rules and reduce complexity following the introduction of a consumer tax.
The proposals include the removal of three additional insurance data returns, a review of the eligibility and disclosure rules for packaged bank accounts, the simplification of rules for collective investment client assets, and the removal of handbook references that are no longer required after the consumer tax comes into force.
In addition, the FCA has outlined wider plans to better support smaller financial firms by developing industry guidance to help them apply outcomes-based regulation, starting with consumer credit firms from next year.
Graeme Reynolds, FCA director of competition and interim director of insurance, said: “We are simplifying and removing the rules for insurers and brokers, reducing regulatory costs and helping them focus on delivering better outcomes.
“Our focus on smarter regulation is not a one-and-done thing and, through the use of consumer tax, we will continue to look at rules we may no longer need. We hope companies will continue to work with us to further simplify the insurance industry so we can support growth and innovation.”
Responding to the FCA’s announcement, Sheila Cameron, chief executive of Lloyd’s Market Association, said: “The LMA is pleased to see the FCA’s continued focus on regulatory simplification in today’s announcement. However, this represents a missed opportunity for meaningful simplification in the commercial and professional insurance sector. The FCA has taken some small steps to allow insurers to adopt a proportional approach to the frequency of fair value assessments of their products and does not impose mandatory training times. These measures are incremental and have failed to bring about any substantive change for insurers run by Lloyd’s.
“For three years, the LMA has worked closely with the FCA on two key issues: the territorial scope of the rulebook and the definition of ‘consumer’. Both have significant implications for the Lloyd’s market but remain unresolved. A clear definition of consumer and a more appropriate territorial scope will go a long way in reducing unnecessary regulatory burdens, while ensuring that genuine retail customers are appropriately protected.
“We therefore join the LMG in urging the FCA to implement these substantive reforms over the next 12 months and deliver on its original commitments to the LMA on this topic. Only by addressing these long-standing issues will the FCA achieve the level of regulatory clarity and efficiency the London market requires.”
Caroline Wagstaff, chief executive of London Market Group, commented: “London Market has been asking for clarity on the definition of a retail customer for three years and for business with non-UK customers to be removed from the remit of UK regulators.
“We acknowledge the progress that has been made, but the pace of change to achieve these goals is not fast enough. Policies must transform the experience on the frontline.
“Defining what constitutes a consumer is fundamental to ensuring appropriate regulation and making the Government’s growth ambitions a reality. Without it, there will be no significant improvements to make the UK more internationally competitive. We demand that both issues are finally and clearly resolved by the end of 2026.”
LIIBA chief executive Christopher Croft added: “LIIBA welcomes the publication of the policy statement and will review its contents in detail before responding further. However, as we have said throughout this process, the statement is intended to provide a way for the FCA to differentiate between retail consumer business and wholesale commerce. It is the FCA that will make the real difference. How this distinction will be used to adopt a radically different regulatory approach to companies that do not deal with consumers remains to be seen in the future. What this different approach will be and how it will work will allow us to judge the impact this move will have on the international competitiveness of our markets.
“We note that the shift to treating overseas operations as outside conduct rules has been delayed until next year. This is disappointing. We urge the FCA and HM Treasury to address the pace of regulatory change in the UK.”