| Link(s): | FCA perimeter report | FCA |
Context
The FCA has updated its Perimeter Report, which sets out the most significant current issues the FCA sees at the edge of its remit (its ‘perimeter’) and the actions needed in response, including where legislative change may be needed to better protect consumers and markets. The FCA perimeter sets out what it does and does not regulate.
Key points to note
The FCA is asking for government action on fifteen areas where changes to its perimeter are needed, including:
- Exemptions in the Financial Promotion Order: the removal of self-certification and higher thresholds for high net worth/sophisticated investors, to close consumer protection gaps.
- Trustees: tightening the regime for when trustees require authorisation, to reduce consumer harm and financial crime risks.
- Sports and non-financial spread betting: clarity from the Treasury on the regulatory boundary for these products, which the FCA considers better suited to a distinct regulatory framework.
- Payments: changes to modernise the regulatory framework so it is agile enough to mitigate new and existing risks (e.g., financial crime) and support innovation.
Key new issues highlighted in this year’s report that fall outside the FCA’s perimeter and may pose risks to consumers include:
- ‘Annex 1 firms’ that are only regulated for money laundering purposes and not subject to the FCA’s wider rules, that also create risks for regulated firms doing business with them.
- The growing use of general-purpose AI for guidance on borrowing, saving and investing.
- Speculative prediction market products, which have expanded rapidly overseas.
The current Perimeter Report is made up of 29 entries, with only two insurance-related issues:
- The first relates to captive insurance, an issue first raised in November 2024, where the FCA is considering changes to provide for a regulatory framework that supports the development of the UK as an internationally competitive marketplace for captive insurance.
- The second relates to a definition of ‘insurance’, which was first raised in 2019.
- Legislation does not currently provide a complete definition of insurance, so court decisions on whether particular contracts amount to insurance help determine where the FCA’s remit applies.
- The FCA has seen a range of insurance arrangements where it believes currently unauthorised participants should need FSMA authorisation. There has sometimes been uncertainty about whether certain contracts should be classed as insurance.
- The FCA has identified previous instances of products being promoted as warranties or service contracts which it considers should properly be classed as insurance contracts.
These situations may risk retail and commercial customers not receiving all regulatory protections and increases the likelihood of unregulated firms undertaking activities without the necessary authorisation. However, this is not a regulatory priority for this year, but the FCA keeps these risks under review, including the need to consult on guidance setting out the FCA’s approach in this area (in addition to our existing PERG 6 guidance).