01.04.25 Strictly Boardroom

FCA to simplify Consumer Duty compliance

The Financial Conduct Authority (FCA) has announced an ambitious and much-needed program to simplify its requirements for firms, following the implementation of the Consumer Duty. This initiative seeks to address justified concerns about the complexity and volume of FCA rules and guidance, which have often forced firms, diverse in their nature and scale, into a regulatory Procrustes' bed. The attempt to fit all firms into the same rigid framework has resulted in disproportionate burdens and stifled innovation.

In July 2024, the FCA launched a Call for Input to gather feedback on how to streamline requirements after introducing the Consumer Duty. The FCA received 172 responses from various stakeholders and conducted meetings and roundtables to discuss the issues. The overwhelming message from firms has been clear: the regulatory burden needs to be reduced, and the "one-size-fits-all" approach must be abandoned.

The FCA plans to take targeted steps to amend or simplify specific areas of its rules. While most respondents supported simplification, there were differing views on the best approach and timeline – a reflection of the nuanced challenges within the sector. The FCA will seek further input on its action plan and provide an update in September 2025.

The focus of the FCA's plan

  • Reviewing the foundations: Addressing how the FCA regulates, the scope of its rules, the application of rules to customers outside the UK, and reviewing core definitions.
  • Future-proofing disclosure: Allowing more flexibility in customer communications to improve consumer understanding and accommodate modern customer journeys.
  • Reducing the administrative burden: Giving firms more flexibility in how they meet FCA requirements, making the regime more outcomes-focused and reducing unnecessary administrative tasks.
  • Streamlining requirements: Removing or revising outdated or overly complex rules. This is essential to ensure that regulation remains relevant and doesn't stifle innovation.

The FCA’s aims

  • More flexibility: Enabling firms to innovate, use technology, and tailor their approaches to individual customer circumstances, especially for vulnerable customers.
  • More predictability: Providing clarity on priorities and upcoming consultations to help firms plan.
  • Improved efficiency: Reducing the time, cost, and complexity for firms to meet FCA expectations, while ensuring good customer outcomes.

To streamline implementation, the FCA will use an accelerated consultation process where there is clear need and stakeholder support and will collaborate with firms and trade bodies on more fundamental assessments. To reduce the burden on firms to track FCA communications, they will review and seek to withdraw Dear CEO and portfolio letters predating the 2022-25 strategy.

The FCA's action plan

  • Reviewing mortgage rules.
  • Reviewing the international application of conduct rules, beginning with the insurance sector.
  • Ensuring consistency in definitions.
  • Reviewing retail banking disclosures and rules for advertising consumer credit.
  • Simplifying rules for insurance and funeral plans.
  • Amending record-keeping and reconciliation requirements in the Client Assets sourcebook.
  • Exploring Training and Competence requirements.
  • Clarifying product governance rules and the application of the Consumer Duty through supply chains.
  • Piloting a smaller firm guide and retiring outdated guidance.

The FCA will also improve the accessibility of its rule review feedback tool and explore options for reviewing the Senior Management Arrangements, Systems and Controls sourcebook.

Proposed timeline

The proposed timeline for these actions, with updates and consultations planned throughout 2025, is:

  • End of April 2025: Withdraw historic communications.
  • May 2025: Publish a consultation paper on mortgage changes.
  • June 2025: Publish a discussion paper on mortgage topics.
  • Summer 2025: Hold an in-person summit to discuss Consumer Duty issues and ask discussion questions on the international scope of conduct rules in the insurance sector and consult on insurance changes.
  • Q3 2025: Improve the accessibility of its feedback tool as part of the Handbook website update.
  • September 2025: Share an update on its programme of work.
  • Within the next year: Consult on removing unnecessary prescription, updating outdated requirements, and improving alignment with the Duty with regard to advertising consumer credit.
  • Later this year: (a) Consult on changes to the requirement for asset managers to report annually on their value assessments (b) Consult on updating requirements in the Client Assets sourcebook (c) Consult on measures to address confusing, outdated, or potentially conflicting requirements in its Handbook materials.
  • 2025: Publish a smaller firm guide.

Industry reaction

The feedback received by the FCA generally supported the simplification of rules and guidance. Respondents suggested improving the drafting and navigability of rules, balancing high-level and detailed rules, removing unnecessary prescription, and clarifying the interaction between sectoral requirements and the Consumer Duty. This is a welcome indication that the FCA is listening to the concerns of the industry and taking steps to create a more workable regulatory framework.

For further information, please email Joshua Bates or call 0151 906 1000.