The FCA is spring cleaning (in its Consumer Duty CfI feedback statement)

Consultation season is coming, as the FCA publishes a roadmap for regulatory simplification.

The FCA has published its feedback statement following the FCA's call for input on simplifying FCA rules after the introduction of the Consumer Duty, which closed in October. Given the scale of the CFI, this represents quick work.

Since then the UK government has ramped up its focus on growth - intensifying pressure on the FCA to streamline its regulatory burden. This objective is evident throughout the FCA's proposals here.

Guiding lights

The new watchwords:

• Flexibility for firms.  To enable firms to innovate, but also to give bespoke customer support including to the vulnerable.
• Predictability.  Giving more clarity on the FCA's priorities and upcoming consultations, helping firms plan  (although the FCA will also use an "accelerated consultation process" to act immediately where necessary).
• Efficiency.  Reducing compliance time, cost and complexity.  All whilst ensuring good customer outcomes.

The laundry list

The feedback statement lists a range of commitments and proposals, as well as highlighting initiatives already underway.  Many of the new initiatives reflect the huge amount of work trade bodies and firms put into engaging with the Call for Input.  We are told that commitments will happen, whereas proposals will require further engagement with stakeholders (generally because these were areas in which opinions differed in the responses to the CFI). 

Key initiatives include:

A commitment to:

• Review the mortgage rules and the financial promotion rules for consumer credit.
• Amend specific record keeping & reconciliation requirements in our Client Assets sourcebook.
• Review Assessment of Value reporting for asset management.

Proposals to:

• Review core Handbook definitions of retail customers and SMEs.      Watch this closely: it's delicate work as in practice it may impact the operation of the regulatory perimeter.
• Review whether to reduce the application of the FCA's conduct rules (including the Consumer Duty) to customers outside of the UK.  (This is a commitment for the insurance sector and a proposal for everyone else.)
• Clarify FCA product governance rules, and the Consumer Duty's operation throughout the supply chain.
• Review savings account disclosures and make other retail banking disclosure requirements more flexible.
• Discuss APR disclosure with stakeholders.

Why not both?

On the one hand the FCA is committing to retiring outdated guidance (including on mortgages, consumer credit and TCF, which is helpful) and to withdrawing Dear CEO letters and portfolio letters pre-dating its 2022-25 strategy (subject to any exceptions).  It remains unclear whether this signals an end to the FCA's enthusiasm for applying current guidance to historic practice.

On the other, recognising that the one-size-fits-all nature of outcomes-focused regulation may create difficulties for smaller firms, the FCA will pilot an approach for small firm "guides" in 2025.

Perhaps this represents the direction of travel - higher-level rules, with guidance specific to particular firm types in something similar to Financial Crime: A guide for firms.  Consolidation of guidance relating to the Consumer Duty was a common request across responses to the CFI. Handbook ‘guides’ such as Financial Crime: A guide for firms have much to recommend them (not least the fact the FCA must consult before amending them). 

Next steps

The FCA has absorbed feedback that now is not the time for a large-scale review of the Handbook. It will use an ‘accelerated’ consultation process in the discrete areas where it considers it has a clear mandate to make changes.   These are largely the initiatives badged as ‘commitments’, in respect of which, watch out for a raft of consultations in May and June. The timing for further engagement on the ‘proposals’ is less clear, but looks likely to include bi-lateral engagement with firms and trade bodies behind the scenes.

The FCA will hold an in-person summit this summer to discuss these issues, updating it's broader programme of action to simplify requirements of firms in September.