A New Type Of Regulator!
With growth being the name of the game, the FCA has been relatively quiet since the turn of the year. Regulating for growth is a difficult balancing act and it was always more than likely that this would lead to existing regulations being rolled back rather than new growth friendly regulations being introduced.
Following the Discussion Paper last year, the FCA have now issued Consultation Paper CP 25/12 which includes proposals for several ways in which the regulatory bar may be lowered including:
- Broadening the scope of Commercial policies that fall out of scope for the Consumer Duty, PROD and large parts of ICOBS
- No longer requiring firms to review the value of their product at least every 12 months
- Removing the specified minimum hours of CPD required
Whilst some of these changes had been predicted, the removal of the minimum CPD requirement has come as a bit of a surprise. It is clearly beneficial to have a well-trained work force and with the myriad of training opportunities available, achieving 15 hours across a year is not too much of a stretch. It may well be that the change will not actually make much difference in the real world – firms will still need to adhere to the requirements of the Training & Competence source book. Many firms will have frameworks in place that are based on the minimum 15-hour requirement, and they may come to the conclusion that it is easier to keep this in place than implement something else. In addition, firms that act as principals to Appointed Representatives will maintain a responsibility for their competency levels and those firms that delegate authority to third parties will still need assurance that this authority is being deployed both in line with any underwriting guidelines and also the regulatory framework.
Removing more types of commercial insurance from both the Consumer Duty and large parts of ICOBS and PROD is a move which potentially has far greater significance and will no doubt be welcomed by many. However, it was interesting to note that some firms that responded to the original Discussion Paper made the point that they prefer to treat all commercial customers the same, regardless of their size or the type of business written. This may be especially pertinent for smaller firms where the same team may deal with many different types of client and coverage and it can be difficult to pivot from one regulatory approach to another throughout the working day.
Firms that do look to benefit from the new category of “contracts of commercial or other risks” will need to have a robust procedure in place to identify customers that meet the new definition and to ensure that in scope customers are not wrongly classified. Firms will always need to remember that certain parts of the FCA Handbook will still apply, particularly those within the “Principles for Business” such as the “Customers Best Interest Rule”.
The proposals around product reviews allow firms to choose how frequently they assess their products for fair value. However, if firms do not review products routinely on an annual basis the likelihood is that they will need to carry out more ad hoc reviews following any significant adaptions made to the product. Within its overarching Product Oversight and Governance policy a firm should have a clear definition of what constitutes a significant adaption and controls should be in place so that these are captured and a product is reviewed prior to any such adaption being implemented.
Whilst many in the industry will welcome these changes, it is not good news for everyone. Clearly, if there is less activity for the regulator to focus on, then it affords them more time to really scrutinise the firms that are firmly in scope. It makes absolute sense for the regulator to apply its lens to the areas of the market where customers are most at risk. Firms operating in personal lines or the smaller end of commercial may find themselves under more scrutiny than ever before. In the end we think this will lead firms to question the markets in which they operate. A firm with a small exposure to the type of business that attracts the most regulatory attention may well reach the conclusion that far too much of their management bandwidth is being taken up by a very small part of their portfolio and choose to focus on business that is out of scope.
The consultation runs until the 2nd July 2025.
If you want to understand in more detail how the proposed changes impact your firm, please get in touch.
