The Financial Conduct Authority (FCA) recently launched a comprehensive review of its financial service rules¹. The goal? To streamline existing rules to reduce burdens on businesses where possible.
This article provides insight on the FCA’s review, explains how it links to the Consumer Duty and the type of feedback that the FCA requires.
The Call for Input review, published in July 2024, seeks feedback and comment from industry to determine how FCA rules could be simplified or removed entirely, particularly due to overlap with the FCA’s Consumer Duty. The focus is therefore on retail conduct rules and guidance.
In announcing the review, the FCA identifies several key outcomes – the ideal result being to lower costs to firms, encourage innovation, and help manage risk appetite in a manner to better support growth. Clearly reducing potential areas of complexity, duplication, confusion or over-prescription has its perks.
No doubt the FCA has been considering its (relatively) new secondary objectives to promote international competitiveness of the UK and support economic growth in the sector, which flow from the Financial Services & Markets Act 2023 enacted last summer. Indeed, earlier this year former UK Chancellor Jeremy Hunt urged the FCA to reconsider certain aspects of its regulatory framework to boost competition and growth².
The FCA’s announcement of the review aligns with the first anniversary of the implementation of the Consumer Duty – which we can all agree represented a paradigm shift in industry, with outcome-based regulation setting higher expectations and standard of care for retail customers.
The FCA is keen to understand where rules and guidance can be refined to better align with the goals of the Consumer Duty. Nikhil Rathi, Chief Executive of the FCA, said:
“We now want to seize the opportunity of the (Consumer) 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.”
In seeking to refine the rulebook, the FCA is asking for comment on issues including:
A date for the diaries, comments on the Call for Input review are invited until 31 October 2024. Regulated firms, industry bodies and advisors, policy makers, consumers and regulatory experts are all encouraged to submit views to the FCA – either via online response form of direct correspondence, more detail on this is in the Call for Input review.
FCA rules and guidance are important tools for firms in delivering customer outcomes and ensuring proper approach to operation, governance and risk management, whilst also supporting the FCA in determining standards and consistency in the market – what ‘good’ looks like.
Therefore, the solution has to be a balancing act, between retention of those necessary detailed rules and guidance, with use of more high level standards and principles where risks can be properly managed.
We do consider a more streamlined rule book would assist firms to gain clearer understanding of regulatory expectations and requirements, which can help those early stage or scaling firms, new market entrants and more established firms, including when exploring new products or services.
Likewise, a greater focus on high level requirements could enable more proportionate application of requirements to firms, when compared with rules that apply to one and all in similar ways. However, we don’t envisage the review will remove those prescriptive rules and guidance on key areas where there is a need for greater regulatory certainty or more standardized approaches – the Call for Input review rightly flags examples, such as product governance requirements, approach to identifying customers’ demands and needs, advising and determining appropriateness and suitability.
We recognise the financial services landscape is complex, but it’s critical firms stay informed of regulatory change to manage risk and service customers effectively.
We support a range of firms navigate the regulatory perimeter, delivering advice in plain English so you understand your responsibilities, can make effective decisions and operate in a compliant manner.
If you have queries on how FCA rules and guidance apply to you, or you’d like to discuss broader regulatory and compliance support, please contact Oliver Woodhouse, who leads our financial service regulatory practice, or Andrew Roberts, both part of our fintech team.
Notes¹ FCA / Financial Regulator seeks to reduce burdens on firms and support growth. |
