| Link(s): | FCA simplifies insurance rules and plans further reviews of requirements | FCA PS25/21: Simplifying the insurance rules | FCA PS25/21: Simplifying the insurance rules |
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.