The Financial Conduct Authority has launched a review into which financial services regulation is too complex, or overlaps with Consumer Duty rules.
In a statement published on the FCA’s website yesterday evening (30 July 2024), the regulator called on financial services companies to “identify rules which could be removed or simplified is they overlap” with Consumer Duty, which was first implemented in July last year.
Specifically, the FCA is “inviting views” on whether changing the way clients are categorised will help lessen any unnecessary regulatory burden for companies.
It is hoped that a streamlining of rules for FCA-regulated firms will “lower costs for firms, encourage innovation” and “help support the risk appetite needed to support growth”. This, the FCA said, could boost the UK’s international competitiveness over the long term.
See also: Concern for regulation drops in year following Consumer Duty
Nikhil Rathi, chief executive of the FCA, said: “We are firmly committed to playing our part in supporting economic growth. The Consumer Duty marked a major shift for firms and consumers by setting higher and clearer standards of consumer protection and requiring firms to put their customers’ needs first.
“We now want to seize the opportunity of the Duty and the move to a clear outcomes-based approach to streamline our rulebook, lowering costs for businesses and supporting the competitiveness and growth of the economy.”
The launch of the review took place on the same day the FCA published its first report into how it is bolstering the competitiveness of the UK financial services sector, relative to its overseas counterparts.
The FCA added: “Recognising the vital role that the regulator plays in enabling new financial services firms to get off the ground, the FCA has improved its authorisation process with 98% of cases now assessed within statutory deadlines, up from 78.9% in Q1 of 2022/23.
“Overseas wholesale financial firms wishing to operate in the UK can benefit from pre-application support from the FCA. The regulator has also completed the biggest reform to the listing rules in a generation.”
See also: Consumer Duty Alliance launches tool to help advisers meet FCA requirements
From the start of next month, the regulator will consult an “independent panel of experts when preparing cost benefit analyses”. “This applies to proposed regulations which have an estimated net annual direct cost to industry of £10m per year and above,” it added.
‘Be careful what we wish for’
Reacting to the announcement, Steve Cameron, pensions director at Aegon, said the calls for input from the FCA are “welcome”, adding the focus on streamlining its rulebook is “something Labour had said it would ask the FCA to undertake”.
“Firms are embracing the Consumer Duty with its focus on delivering good consumer outcomes. The FCA is encouraging a flexible approach and it’s right to reflect on whether there are areas of the FCA’s rulebook which are unhelpfully prescriptive or simply no longer needed,” he explained.
“Rulebook changes will be needed to make sure individuals can get the help they want, when they need it, at a price they can afford. The current advice guidance boundary has left a ‘support gap’ that needs filled.”
Cameron said one area which might benefit from simplifying the rulebook is disclosure. “The Consumer Understanding outcome within the Duty is very relevant here.
“However, there are times when having prescriptive rules to follow can be helpful to firms, or needed for consumer protection. When responding, we need to ‘be careful what we wish for’.”
Tom Selby, director of public policy at AJ Bell, agreed the FCA’s “period of regulatory self-reflection is welcome”, adding that it “provides an opportunity to ensure the rules and regulations imposed on firms across various financial services sectors are fit for purpose”.
“The development of reforms to the advice guidance boundary, including the potential for more personalised guidance through ‘Targeted Support’, will require firms to be given flexibility to design guidance interventions based on their understanding of customer behaviour. The demands of the Consumer Duty on firms to aim for ‘good outcomes’ for customers should reduce the need for overly prescriptive rules.
“Instead, businesses will benefit from additional flexibility to deliver propositions that work for their customers, in line with the overarching objective of delivering good outcomes under Consumer Duty.”
This story was written by our sister title, Portfolio Adviser
