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

Context

The FCA has announced its publication of Policy Statement PS25/21, in which it sets out what it sees as simplifications of insurance-related Handbook rules and requirements.  The FCA received over 600 responses to the Consultation, of which 462 were from individual industry practitioners in the context of the proposed changes to the training and competence requirements.

These changes apply to insurers, Lloyd’s managing agents, Insurance intermediaries, and firms that provide funeral plans.  The new rules come into force on 9 December 2025, and the FCA states that the “changes are optional, to give firms greater flexibility”.

The final rules aim to give more flexibility and responsibility to insurance firms, such as determining the frequency of their product reviews and how much continual professional development (CPD) staff should undertake.  The FCA will make further changes to its insurance rules and cut unnecessary requirements next year, including reviewing the international application of its rules and the Consumer Duty.

The FCA has also published Consultation Papers CP 25/35, CP25/36 and CP 25/37, and a Consumer Duty statement on co-manufacturing (all summarised below).  A useful summary of the current Consultations and further planned FCA work in 2026 are set out at paragraph 1.16 on page 8 of the Policy Statement.

Key points to note and next actions

The FCA has confirmed several measures to simplify regulations for firms across the insurance and funeral plans sectors:

• Determining which rules apply to commercial insurance (what the FCA is describing as the ‘SME watershed’).
  • This will entail, in effect, splitting the existing ‘contracts of large risks’ definition into two, removing that definition, and replacing it with ‘Specialist risks contracts’ (retaining the existing product-specific categories, and being contracts of insurance covering railway rolling stock, aircraft, ships, goods in transit, aircraft liability and liability of ships, and also including contracts of insurance covering credit and suretyship where the policyholder is engaged in certain specified activities) and ‘Larger commercial customers’ which are commercial customers of any general insurance product who exceed the FOS eligibility threshold criteria, with the change relating to the ‘policyholder making arrangements’.
• The option, subject to meeting all the relevant conditions, to allow a ‘lead firm’ (which must be an insurer) to take responsibility for product design and approval.  The non-lead firms will be required to cooperate with the lead firm by, for example, sharing all information required for the product approvals and reviews.  The current requirements, where all co-manufacturers are equally responsible for meeting the PROD 4 requirements, remain unchanged (other than the additional guidance in relation to the written agreements between the multiple manufacturers).
• Broadening the scope of, and clarifying, the bespoke contracts exclusion.
  • The FCA has finalised the rules as proposed, with minor amendments, and is amending the application provisions under the Consumer Duty products and services and price and value outcomes to make it clear that the product governance obligations for these outcomes do not apply to bespoke non-investment insurance contracts that are exempt from PROD 4.
• Allowing firms to determine the frequency of product reviews by removing the minimum review frequency for product reviews.
  • Instead, manufacturers will need to determine the frequency of the reviews based on that product’s potential for customer harm, arising from risk factors associated with the product
  • Broadly similar requirements are being introduced for distributors in relation to the review of the product distribution arrangements.
  • The FCA has taken the opportunity to remind firms that product reviews are solely the manufacturer’s responsibility, while distributors must review their product distribution arrangements. So, the timescales of manufacturers and distributors can be different. However, if firms want to align timescales, they should share information on the agreed review frequency appropriately. For this reason, and taking into account the consultation feedback, the FCA is adding guidance to clarify that, upon request, manufacturers are expected to share information on the appropriate intervals of the product review with distributors in the chain. We have added similar guidance in relation to the review of the distribution arrangements by distributors.
  • Firms are responsible for reviewing and updating the review frequency when data suggests changes to the risk of potential customer harm posed by the product.
• Removing notification and reporting requirements (to the FCA) for employer’s liability insurance.
  • The new rules require that the director’s certificate and annual audit must be obtained by 31 August each year and cover the period of production of the register from 1 April to 31 March. The FCA is not proposing to remove or relax the latter. Where a firm is not materially compliant, it will need to consider whether this amounts to a significant breach requiring notification to the FCA, considering the relevant guidance under SUP 15.3.12G and SUP 16.23A (which has now been moved to ICOBS 8.4 (Employers’ Liability Insurance)).  Firms will be expected to continue to notify the FCA of any significant breaches of its rules.
• Removing the minimum required 15 hours of CPD for employees, including the associated record-keeping and reporting requirements.
  • The FCA states that its proposal “…is not intended as a relaxation of the overall competence and training expectation in our rules. Investment in training and development improves standards that build trust in the sector among consumers and corporate buyers, thereby supporting growth.  Employee competency has always been a basic expectation within the insurance industry and should not require a minimum threshold to be prescribed by the regulator. Knowledge and competency requirements, including CPD, will remain mandatory but flexible, while putting the onus on firms to ensure that employee training is appropriate to the needs and demands of their business and their employees’ roles.”
  • Firms must continue to make sure employees undertake appropriate ongoing training under the competency requirements in SYSC 5.1.

Context

The FCA has published Consultation Paper CP25/36, which will partly be of interest to insurance intermediaries and insurers conducting insurance distribution activity (the conflicts of interest elements).  The client categorisation rules elements seek to reset how firms distinguish between retail and professional clients, which will not impact our clients (in this context, the differentiation between retail and professional requirements will not be relevant to insurance distribution, consumer credit or funeral planning firms).

Key points to note and next actions

In relation to conflicts of interest:

• Over time, the FCA’s conflicts of interest rules, which apply to almost all authorised firms, have become overly complex to navigate.
• By reducing the length and complexity of the current rules, the FCA is seeking to ensure that its rules are proportionate and clear for firms to interpret and implement.

The Conflicts of Interest proposals:

• The FCA is proposing to rationalise the rules in SYSC 10 and SYSC 3, because the various conflicts of interest rules applicable to different types of firms are substantively similar and their overarching intention is the same.
• The FCA is proposing to rationalise SYSC 10 by removing minor unnecessary distinctions between rules that currently apply to different types of activity, without changing the current scope or application of the rules for firms.
• A table setting out which rules the FCA is proposing to merge has been provided in Annex 4 of the Consultation to help firms compare current rules to the proposed new rules and identify differences.
• There is no significant impact for general insurance intermediaries, other than the general application of SYSC 10 being clarified and simplified, and less content in the Handbook to navigate.

The FCA is asking for comments on this Consultation Paper by 2 February 2026.

Context

Alongside its Policy Statement in relation to simplifying the insurance rules, the FCA has published a Consultation Paper CP25/37 outlining its proposals for further targeted clarifications of FCA Handbook materials.  The Consultation seeks views on FCA proposals to simplify its requirements, while ensuring it continues to support and protect customers.

Key points to note and next actions

The Consultation proposals are designed to:

• Resolve uncertainty in FCA rules and guidance, that have been wholly or in part superseded.
• Introduce greater proportionality and clarity to existing rules.
• Resolve clear cases of conflict and duplication in FCA rules.
• Seek views on how the FCA could enhance its support for smaller firms.

Insurance intermediaries, insurers, Lloyd’s managing agents and firms which provide funeral plans are included within the list of organisations that the proposals would apply to.

• Chapter 5 addresses simplifying insurance and funeral plan rules, including:
  • Removing PPI-specific rules on customer eligibility (ICOBS 5.1.2R and ICOBS 5.1.3G), as these requirements are now addressed by ICOBS 5.1.1G and the Consumer Duty.
  • Removing the rule requiring firms to draw customers’ attention to the importance of reading documentation (ICOBS 6.4.5R), as this is now addressed through the Duty’s Consumer Understanding outcome.
  • Clarifying existing non-product specific guidance in ICOBS 5.1.1G to confirm that firms must take reasonable steps to ensure customers only purchase policies under which they are eligible to claim benefits.
  • Removing the additional expectations (contained in PROD 4.5) for manufacturers and distributors in relation to value measures data.  This would involve deleting PROD 4.5, because its requirements are now fully addressed elsewhere in FCA rules – particularly through the broader and more detailed provisions in PROD 4.2 and 4.3.
  • Proposing to remove the minimum 12-month product review requirement for funeral plan manufacturers.
  • Proposing to delete ICOBS 6B.2.57 R which requires firms to share pricing records with the Senior Manager responsible for reporting to the FCA. These records relate to compliance with pricing rules, including renewal pricing practices and fair value assessments. This rule was originally introduced, in 2022, to support the General Insurance Pricing Attestation (REP022), which required senior managers to confirm compliance with pricing requirements, but which has subsequently been decommissioned.
• A ‘Smaller Firm Guide Discussion’ appears in Chapter 6 of the Consultation, which sets out proposals for further smaller-firm guidance in the form of issue-specific guides, Directory-style guides, and the enhanced use of good and poor practice documents.
• Chapter 7 of the Consultation addresses updating and removing references to Principles 6 and 7 and Treating Customers Fairly.  The proposals include:
  • Retiring the Guide on the Responsibilities of Providers and Distributors for the Fair Treatment of Customers (RPPD).
  • Considering the ongoing status of historic FSA publications in relation to TCF, and the FCA’s Fair treatment of customers web page, which includes the outcomes set out under the TCF initiatives, comments on Principle 6, and several other points on firms’ treatment of customers.
  • Updating references to reflect the new standards expected under the Consumer Duty which may be higher than those under Principles 6 and 7.
  • Updating references to clarify the scope of Principles 6 and 7 which still apply where the Consumer Duty does not.
  • Replacing the references to Principles 6 and 7 with a reference to the Consumer Duty. These references apply solely to retail markets and accurately convey rules and expectations under the Consumer Duty.
  • Removing references to Principles 6 and 7 without replacement where appropriate. This includes a proposal to retire the guidance provision at DISP App 3.4.3G which relates to handling of payment protection insurance complaints.
• Annex 1 includes a full list of the questions asked throughout the consultation. Please send your comments to ReviewOfRequirementsCFI@fca.org.uk by 27 January 2026.

Context

The FCA has published its latest Quarterly Consultation Paper no. 50, as CP25/35.  There are three proposals which are potentially relevant to general insurance firms, in relation to the decommissioning of certain sections of the REP021 insurance pricing return, a change in submission frequency of the FIN073 Baseline Financial Resilience return, and a reduction in the late submission fee for reports and returns.

Key points to note and next actions

If the proposals go ahead:

• Price-setting insurance intermediaries will no longer need to complete REP021d (general insurance pricing information for closed books of business) but REP021e will still need to be completed.
• For firms which complete a financial year-end RMAR, and which complete Section A (RMA-A), they will only need to submit the FIN073 Baseline Financial Resilience return annually rather than quarterly unless they reported total revenue from regulated activities within the scope of the RMAR of more than £150m for that financial year.
• The current £250 fee for late submission of reports and returns will be reduced to £100.  A key driver for this move is that 80% of firms have not used MyFCA, and there has been a marked improvement in submission timeliness as a result.  Under the proposals, the FCA is proposing to provide clearer guidance and improved notifications, helping firms understand the process and avoid unnecessary admin fees.

Context

The FCA has published a statement about firms working together to manufacture products or services, reminding firms that the Consumer Duty sets rules for firms manufacturing products or services. Discussions with firms show that some have difficulty applying the rules when working together to manufacture a product or service. In some cases, they are finding it difficult to decide which firms are subject to the rules, or to understand the impact on their dealings with each other.  For general insurance, the position is perhaps clearer in that the relevant Rules and Guidance are to be found in PROD 4, which is more prescriptive than the Consumer Duty requirements.

Key points to note and next actions

• Although Consumer-Duty focused, the FCA’s planned work in this regard will help general insurance firms to understand the FCA’s thinking in relation to co-manufacturing.  For example, the FCA is considering changes to make clear when and how firms can rely on each other when they work together in distribution chains.
• The FCA explains that distinct considerations apply to the insurance sector, where manufacturers are subject to PROD 4. The FCA is introducing separate changes to the insurance manufacturer rules, and this statement doesn’t relate to its expectations under PROD 4. The rules in PROD 4 are designed to address specific risks the FCA identified in distribution chains for non-investment insurance products.
• The statement includes commentary on four key areas – decision-making, allocation of responsibility, liability, and outsourcing.

Context

The FCA has published findings from its analysis of the links between the price of motor insurance and local area ethnicity in England and Wales, along with a Research Note and a series of Annexes to the research.

The Citizens Advice Bureau had raised concerns that individuals from minority ethnic backgrounds are paying £307 on average more for their motor insurance.  The FCA committed to examining those concerns.  As a regulator, the FCA has access to data which is representative of the wider market, including risk measures. The FCA’s analysis used data from 6 million policies, covering over half the UK market by insurer and including both predicted and actual claims costs.  This data was merged with ethnicity data from the Office of National Statistics for local areas covering 1,000–3,000 residents.

Key points to note and next actions

• Risk is fundamental to insurers’ business models price setting. This includes looking at a range of data points like driver age, experience, and claims history. Insurers don’t collect data on individuals’ ethnicity and don’t price directly based on it.
• The data used can also include geographic location, where factors like high traffic, theft, and vandalism matter. To measure that risk, the FCA looked at insurers’ expected claims costs in an area, with analysis showing that the relative risks in a geographical area account for the overwhelming difference in prices between those areas with high and low numbers of residents from minority ethnic backgrounds.
• The FCA recognises that does leave a difference in price, albeit a small one, that can’t be attributed just to the claims insurers expect to pay. Looking into why this ‘unexplained’ difference occurs, the FCA state that the short answer is they don’t and probably can’t know.
• The Motor Insurance Taskforce Final report presents the findings of the task force and sets out the actions government department and regulators are taking to help stabilise and reduce the premiums paid by drivers. Efforts will continue to address the broader factors that contribute to the cost of claims, such as vehicle theft and the cost of repairs, including:
  • efforts to tackle vehicle-related crime;
  • continuing to make roads safer; and
  • working closely with industry to encourage innovation in new vehicle technologies, driving efficiencies and reducing costs.

As well as setting out the actions government departments and regulators are taking, the report also explores the characteristics of the UK’s motor insurance market. It acknowledges that the market is strongly competitive and innovative and has faced real and increased costs to serve motorists in recent years.

Context

The Regulatory Initiatives Grid is produced by the Financial Services Regulatory Initiatives Forum, which brings together key UK regulators and government departments, including the FCA, Bank of England, PRA, Payment Systems Regulator, The Pensions Regulator and HM Treasury.  The latest edition of the Regulatory Initiatives Grid, setting out the regulatory pipeline for financial services over the next 2 years, has been published. The grid covers current and planned initiatives for 9 organisations.  In addition to the (70 pages long) .pdf version, the Grid is also published as an interactive web page and an Excel spreadsheet.

Key points to note and next actions

This edition of the Regulatory Initiatives Grid includes 124 live initiatives (a 13% reduction from the previous edition), of which 45 are joint initiatives where there is collaboration across regulators and government departments.  In our view, there are 29 which are more directly relevant to the sectors we support, which are listed below:

• Appointed Representatives regime legislative reforms (FCA and HM Treasury)
• Automated Decision Making and Profiling Guidance (ICO)
• Berne Financial Services Agreement (FCA/PRA)
• Captive insurance (HM Treasury/FCA/PRA)
• Complaints Guidance for Organisations (ICO)
• Complaints reporting review (FCA)
• CONC 3 review (FCA)
• Consultation on Improving the Effectiveness of the Money Laundering Regulations (HM Treasury)
• Consumer Duty scope and distribution chain (FCA)
• Data Protection by Design and Default Guidance Update (ICO)
• Gibraltar Authorisation Regime (HM Treasury)
• High Cost Short Term Credit Price Cap Review (FCA)
• Incident and Outsourcing and Third Party Reporting (Bank of England/FCA/PRA)
• Insurance third-country branches: policy implementation and other updates (PRA)
• International Transfers Guidance (ICO)
• Modernising the redress framework and external redress guidance (FCA)
• Motor Finance commission review (FCA)
• Non-financial misconduct in financial services firms (FCA)
• Premium Finance Market Study (FCA)
• Pure Protection Market Study (FCA)
• Purpose Limitation Principle Guidance Update (ICO)
• Recognised Legitimate Interest and Legitimate Interest Guidance (ICO)
• Reform of the Consumer Credit Act 1974 (HM Treasury)
• Reforms to the Senior Managers and Certification Regime (FCA/PRA/HM Treasury)
• Regulation of Buy Now Pay Later (FCA/HM Treasury)
• Review of FCA requirements following the introduction of the Consumer Duty (FCA)
• Transforming Data Collections (Bank of England/FCA/PRA)
• UK Captives Insurance Regime (Bank of England/FCA)
• Value Measures Post-Implementation Review (FCA)

Context

The ABI has published a blog in which it introduces its response to the Which? super-complaint allegations of widespread issues with the home and travel insurance markets, particularly in relation to claims handling.

Key points to note and next actions

• While the ABI agrees on the need for improvements in the claims handling journey and people’s understanding of the insurance they’re buying, the suggestion of “widespread failings” across home and travel insurance markets is unwarranted in the ABI’s opinion. Which?’s conclusions are, according to the ABI, based on nine policy wordings, 24 interviews and 3,322 survey responses. The ABI does not believe that this reflects the scale of the home and travel insurance markets, which wrote 29 million policies in 2024 and paid out £3.5 billion across 582,000 claims.
• The ABI explains that the suggestion that the FCA has taken “little decisive action” also does not align with a regulator that has intervened robustly in recent years, including through pricing rules, GAP insurance reforms, and multi-firm reviews.
• Given the FCA’s active supervisory approach and industry-led improvements, the ABI does not believe a market “reset” or Which?’s recommendation for an FCA market study is necessary or beneficial.
• The formal response document sets out the ABI’s belief that there is no evidence of market failure, and that it will work with its members in 2026 to improve claims handling and customer understanding.

Context

The CII has published a statement in which it comments on the FCA’s decision to remove the compulsory 15-hour minimum annual CPD requirement for insurance firms.

Key points to note and next actions

• The CII reflected the views of its members when it challenged the proposal during the FCA’s consultation process. The FCA acknowledged this feedback in its Policy Statement and emphasises that its decision is “not intended as a relaxation of the overall competence and training expectation in our rules”.
• The CII welcomes this positioning, alongside the FCA’s reference to the change making “no difference for members of professional bodies who are subject to their mandatory CPD requirements.”
• The CII has thanked the FCA for engaging so openly with it and its members, and looks forward to continuing to work closely on the shared goal of building and maintaining trust in the insurance profession.
• The CII will still maintain its existing 35-hour CPD requirement for qualified individual members.