The Big Question: Where can the FCA streamline its rulebook in line with Consumer Duty linked review?

Branko Bjelobaba, principal, Branko 

This is one hell of a challenge considering the FCA’s rulebook is over 9,000 pages long.

To me, the rules are sensible. They ensure the provision of well run firms, arrangements for handling client and insurer money, rules for the conduct of individuals and rules that explain the selling process and protect consumers if complaints are made.

Consumer Duty, introduced in July 2023, has driven the better design of products, their pricing and the ability of everyone involved in the value chain to service the customer properly.

The Biba Compliance Manual has been published for the last 20 years, including just over 400 pages compared to the FCA’s 9,000. The core text of this publication has only increased 10% over the last two decades.

Whether the FCA can achieve a similarly streamlined document, who knows? But any rulebook must still engage with the sector – briefing, informing and educating market participants.

The root cause of non-compliance tends to be a lack of awareness rather than deliberate actions and a better informed regulated community, in my eyes, is a great way for the FCA to protect consumers.

David Sparkes, regulation director, Biba

Firstly, we need to consider what rules add no value to customers, or that no longer provide anything not also covered by Consumer Duty.

A good place to start might be to look at the number of disclosures and documents that firms are required to give to customers – the adage “too much information kills information”, as quoted by a former chair of a European supervisory authority, comes to mind.

How much of what they receive do customers value? How much do they understand? What needs to be done to separate the wheat from the chaff so that customers can make truly informed decisions?

The FCA is making a positive contribution by asking whether the largest end of the medium-sized enterprises designation really needs the same protections as the smallest end.

This is a welcome step and we have called for Consumer Duty’s scope around general insurance to be revised.

Also, let’s think about the overarching rule to act in the customer’s best interests.

This works alongside the Consumer Duty principle, the cross-cutting rules, the four consumer outcomes and the professional help of insurance brokers to benefit the end customer.

Janice Batty, director of compliance and data protection officer, Ageas UK

The essence of Consumer Duty has rightly shifted the focus of insurance firms to ensure good outcomes for customers.

Fundamentally, simplifying and streamlining rules to eliminate any rule that diverts focus from this key objective can only be a positive move for both businesses and their customers.

Traditionally, the vast FCA rulebooks have focused on processes rather than outcomes.

Many rules now overlap the new Consumer Duty regulations, including – but not limited to – the Product Intervention and Product Governance Sourcebook (PROD) and the Insurance Conduct of Business Sourcebook (ICOBS). This adds to the complexity for insurance firms and brokers.

The shift of emphasis to customer outcomes is welcome, as is the FCA’s stated intention to move to a clear outcomes-based approach to streamline the rulebook.

I fully expect willing engagement from the industry on this and a keenness to share its working knowledge of implementing Consumer Duty and rules – whether that be via a formal review or in an interactive working group. This is an opportunity not to be missed.

Reducing rulebook complexity will make it easier for everyone working in our industry to adapt to the FCA’s outcome focused ethos.

I also believe changes will influence the culture of the whole industry, encouraging a more flexible approach to customer focused product innovation.

James Daley, managing director, Fairer Finance

One of the biggest opportunities for the FCA as it looks to streamline its regulations is to simplify the rules around the mandatory information firms must give to customers.

During the noughties and the 2010s, many rules were created in Europe, taking a very prescriptive approach to what consumers needed to be told before buying a product.

The most notable example in insurance is the insurance product information document – but there are other fairly pointless mandatory disclosures that have been embedded in the FCA rulebook for years.

This includes a requirement to tell customers what language you’re going to communicate with them in or the requirement in some sectors to produce a “demands and needs” statement.

These rules were all created with the best of intentions, but – in many cases – they have had the opposite impact of what was intended. If consumers are presented with too much information, they are less likely to read it.

Furthermore, prescribed formats stifle innovation and prevent firms from adapting communications as the ways in which consumers engage with information change.

Consumer Duty does away with the need for most of these rules. Firms need to prove they are working to deliver good outcomes and that their customers can understand their communications.

This broad, principles-based approach means firms will need to continue thinking about their communication strategies and must adapt them through testing to determine what works best. The days of the insurance product information document are hopefully numbered.

Shirley Woolham, chief executive, Minster Law

Overall, I support the principle of simplification – but we shouldn’t need the FCA to drive it.

Looking at the implementation of Consumer Duty in particular, the FCA acknowledges some progress and the sector’s efforts.

However, there are also notable concerns about the effectiveness of monitoring, the value delivered by products and the actual improvements in customer experience.

Solving this is where collaboration can help – creating connectivity across the supply chain and joining up delivery of great customer outcomes against the expectation and intent of the regulations.

The more we simplify our own models and bring our collective knowledge together, break down silos and foster an environment of common purpose and coordination, the better we’ll deliver for the customer.

We’ll also align with the FCA’s own commitment to driving improvements while offering support, particularly to smaller firms, but with clear expectations for higher standards and accountability.

Vaughan Jenkins, managing director for strategic accounts and partnerships, Moneyhub

The FCA’s review of the potential for streamlining regulation comes in the context of both a push for a post-Brexit future regulation framework and Consumer Duty.

This is a familiar step – in early 2023, the FCA issued DP23/2, a similar exercise that focused on the asset management industry. This provides a useful guide for the wider Consumer Duty linked review, highlighting the twin-track approach of looking at both efficiency and effectiveness.

While the headline benefits have been about deduplication and rationalising regulation, this earlier exercise in 2023 pointed to gaps and weak consumer protections that needed to be remedied through additional regulation.

This year’s review will also need to go beyond eliminating the overlaps in different rulebooks that evolved from years of disparate European Union led initiatives.

As a fintech provider, we see opportunities to cut red tape and focus on the quality of outcomes. Authorisation processes can certainly be improved and reporting can be streamlined and automated.

However, for the FCA’s latest review to truly succeed in establishing the UK as a leading market for financial services innovation and ensuring positive customer outcomes, supervision and enforcement must align with simplified rules.

Richard Turnbull, managing director, Collegiate Underwriting

It is understandable that well run companies might feel frustration at the need to digest and implement a 300-page policy statement, especially if they feel that much of it is common sense, that they are already compliant or that some of the points repeat existing rules.

For this reason, any new plans to simplify guidance and move towards a less prescriptive regulatory regime should be welcomed.

The FCA’s plans present the opportunity to achieve a balanced regulatory environment that protects the consumer without overburdening medium-sized enterprises, such as the innovative MGA sector, which is currently creating many exciting economic growth opportunities.

For any streamlining of the rules to be effective, there needs to be a focus on effective monitoring that ensures poor practice and lack of focus on positive customer outcomes is identified quickly and acted upon proactively and efficiently.

If we welcome this initiative and want it to be a success, then we must accept responsibility as an industry for playing our part in making it work.