Welcome to the UKGI weekly regulation update service for Aviva ABC brokers

Context

The FCA has announced that it is to commence its planned Market Study into the pure protection market, and has published the finalised Terms of Reference accordingly.  The study will consider how well the distribution of pure protection insurance products – which support families with financial commitments if someone becomes critically ill or dies – is working for consumers.  The types of products in question are term assurance, critical illness cover, income protection insurance and whole of life insurance.  Private medical insurance is out of scope, as well as funeral plans and accident, sickness, and unemployment products. 

Key points to note and next actions

While the FCA has seen indications of good outcomes for consumers and relatively few complaints, there are concerns that commissions used to sell these products may affect the outcomes consumers receive and the products’ value or design.  The value-related findings, therefore, will include the value of the products themselves, and the value that the distributors are adding for the commissions they are earning.  As such, the output from this study may be relevant to the distribution of other types of insurance.

The FCA committed to looking into the sector in further detail in August last year but, prior to launching, took feedback from the market on the terms of reference.

The study will examine whether:  

• the structure of commission encourages advisers to suggest switching that may not be beneficial for consumers;
• premiums are being raised by insurers to pay a higher commission to an intermediary;
• the products provide fair value; and
• the market supports innovation and growth.

The FCA wants to develop a better understanding of:

• barriers to innovation and investment;
• the ‘protection gap’ – the extent to which customers, who would benefit from cover, are not adequately covered; and
• ‘access to cover’ – access for those customers that fall outside a typical definition of a ‘healthy life’, such as those with existing medical conditions.

Initial findings and any proposed next steps will be published by the end of 2025

Context

As part of ‘reducing the regulatory burden’, and as outlined in its letter to the Prime Minister on 16 January this year, the FCA has outlined the first steps in its plans to review Handbook provisions.  In this first step, the FCA has set out its proposals to review its expectations for mortgages and lending, and to explore how it can simplify communications about savings accounts. It will also review parts of its credit advertising rules, such as lengthy terms and conditions.  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.

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.

Key points to note and next actions

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:

• 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 (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);
• reviewing 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.

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.

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.
• 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, 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.

Context

The FCA has launched a new 5-year strategy which sets out the FCA’s vision for the next 5 years, and which will focus on 4 priorities.  Each of the above four priorities has its own dedicated section within the Strategy document; the priorities are designed to support each other.  The strategy sets out how the FCA will “…become more efficient and effective and make the choices that shape the financial system.”

Key points to note and next actions

The strategy explains that the success of the financial services industry depends on trust in financial firms and the services they provide, and in the FCA as the regulator

The overall aims of the strategy, therefore, are to deepen trust, rebalance risk (regulatory, firm, market, and consumer risk), support growth, and improve lives.  The four priorities are:

• Be a smarter regulator; predictable, purposeful and proportionate. The FCA will improve its processes and embrace technology to become more efficient and effective.  It will invest in its technology, people and systems (for example, by digitising authorisation processes so it is easier to apply, so follow-up requests are reduced, and so the information the FCA receives is better quality).
• Support sustained economic growth, by enabling investment, innovation and ensuring the continued competitiveness of the UK’s financial services.  The FCA will reform rules to ensure they suit the UK market. For example, in areas like commercial insurance and asset management where the UK is a world leader, the FCA will strip out redundant requirements
• Help consumers navigate their financial lives by working with industry to boost trust and product innovation, and by ensuring the right information and support is available for people to take financial decisions.  The ‘information and support’ priorities will underpin and increase the importance of firms being able to deliver good consumer understanding and consumer support outcomes.
• Fight financial crime, focusing on those who seek to use the fact they are regulated to do harm.  It will go further to disrupt criminals and support firms to be an effective line of defence.  The FCA will seek to be “an international regulator for an international market”.

The FCA is accountable to HM Treasury and Parliament and will seek to consistently explain the choices it is making and why, being open about the risks these might present.  These choices and risks will be measured by a new set of outcomes and metrics that the FCA has published to support its new strategy (see separate article below)..

Context

The FCA, alongside the publication of its new 5-year strategy for 2025 to 2030, has set out the outcomes and metrics it wants to achieve for consumers, markets and the wider economy.  There are four sets of metrics, one for each of the four main priorities of the strategy.  They represent the FCA’s aspirations over the next five years.

The FCA has set out between two and four outcomes for each of its strategic themes and the key metrics it will use to track them.  For each metric it includes the data source, baseline value and recent trends.  The FCA will also continue to track and report on metrics that relate to specific activities it is undertaking, and it will keep these web pages updated annually with the latest data to show progress.

Key points to note and next actions

• A smarter regulator: in year one of its strategy, the FCA says it will know it is delivering by continuing to track existing operational metrics, looking for maintained high adherence to service standards in its operating metrics, and continued improvement in metrics that show it is delivering its secondary objective on international competitiveness and growth (SICGO).  It will also track continued improvement in firms’ perceived effectiveness of the FCA in regulating the financial services industry (using the FCA and Practitioner Panel survey).
• Supporting growth: outcomes will be increased competitiveness of the UK financial services industry, and a more productive and innovative financial services industry.  The metric will be to maintain the UK’s position as one of the top global financial and fintech centres in the world, more firms using the FCA’s innovation and tailored authorisation services, an increase in financial services exports, and an increase in access to capital for businesses.
• Helping consumers navigate their financial lives: outcomes will be that consumers are better able to withstand a change in circumstances and save and invest more for later life, and have more consistently positive experiences when engaging with financial services.  The metrics will be measured by the Financial Lives Surveys, and will be to measure increases in the proportion of consumers who hold certain key products, the proportion of consumers (with £10k or more in investible assets), who hold any mainstream investment, and consumer satisfaction with their financial services providers.
• Fighting financial crime: outcomes will be slowed growth in investment and authorised push payment (APP) fraud, protecting market integrity, and tackling money laundering through the financial system.  Metrics will be measured against various sources such as the FCA’s own data, and data from UK finance and the National Fraud Intelligence Bureau.  The metrics will be ‘continued slowed growth’ in investment fraud victims and losses and in APP fraud cases and losses, and an increase in the cleanliness of UK markets through the FCA’s three market cleanliness statistics.

Each of the four separate web pages for the outcomes and metrics explains why the FCA has chosen the metrics, and contains graphs of historical values.  The FCA recognises that the chosen metrics have limitations, and it has indicated where it is looking to improve metrics.  The FCA welcomes firms’ views on the metrics, to be sent to outcomes.metrics@fca.org.uk.

Context

In its latest Regulatory Round-Up e-mail, the FCA has reminded firms that it’s new ‘My FCA’ portal  for registered and authorised firms will be launched on 31 March 2025.   Once signed in, users will be able to see their firms’ scheduled regulatory reporting and attestation tasks in one place.  My FCA also provides useful information and updates, gathered from Connect, RegData and the Online Invoicing System, as well as recently published regulatory updates.

Key points to note and next actions

• The design and implementation of My FCA is a key milestone of the FCA’s Transforming Data Collection programme, a joint programme between the FCA and the Bank of England.
• My FCA uses existing sign in credentials to access Connect, RegData and our Online Invoicing System.  Once signed in, users will have direct access to these systems, without the need to sign in again.  Users can view a task list of their firms’ scheduled regulatory reporting and attestations, with direct access to the forms.
• The FCA suggests that firms add My FCA – https://myfca.fca.org.uk – to their allowed list of trusted website addresses before 31 March.

Context

In line with the policy to automatically adjust the Financial Ombudsman Service’s (FOS) award limit to keep pace with inflation, the award limits will increase with effect from 1 April 2025.  The table in DISP 3.7.4 has been updated to show the maximum awards the Ombudsman may make. The next adjustment will be considered after the CPI figures for January 2026 have been released

Key points to note and next actions

The limits have increased to:

• £200,000 for complaints referred to FOS on or after 1 April 2025, about acts or omissions that took place before 1 April 2019; and
• £445,000 for complaints referred on or after 1 April 2025, about acts or omissions that took place on or after 1 April 2019

Context

Following the publication of the FCA’s 2024 report on non-financial misconduct in the wholesale specialty insurance market, the FCA requested work be undertaken by trade associations to provide their respective memberships with appropriate support and guidance on non-financial misconduct.  Given the uniqueness of the market, the Lloyd’s Market Association (LMA), International Underwriting Association (IUA) and London & International Insurance Brokers’ Association (LIIBA) agreed on a collaborative approach as their messages are aligned on this important topic.

Key points to note and next actions

As a result, the associations have launched a new joint training programme for the specialty insurance market – the first of its kind and the first ever joint training programme shared across brokers and underwriters. The programme, consists of a series of six workshops tailored for members of the LMA, IUA and LIIBA (which has run a webinar on this topic for its members), with an additional session for Independent Non-Executive Directors (INEDs) and Non-Executive Directors (NEDs) of LMA, IUA and LIIBA member firms.