The FCA has opened a Call for Input (CfI) in relation to the simplification of its rules and guidance, primarily in relation to retail but not excluding wider rules and guidance, relative to overlap with the Consumer Duty. This move follows the introduction of the Consumer Duty, over a year ago now for open products and more recently for closed products, and which will remain a core regulatory theme.

Why

There has long been concern about the complexity of regulatory rules and guidance and of the sheer size of the FCA's famously lengthy Handbook. The aim behind the exercise is to assess whether increasing reliance can be placed on high-level rules as a way to simplify the overall regulatory picture. The primary consideration will be around whether the removal of detailed and prescriptive rules and guidance, replacing them with high-level rules, could support innovation and enable greater flexibility.

Who

All firms and industry bodies, as the main user-groups of the FCA's rules and guidance for day to day activity, will be interested in this CfI. Consumers and consumer groups, as well as policy makers and other regulatory bodies, will also be interested.

What

The main target is over-burden, complexity, confusion, duplication and the like which is generally regarded as adding cost but no benefit to the financial services markets. The aim will be to create simplification and clarity with reliance on high-level rules, wherever possible, to help the ease of doing business and create a more flexible and future-proofed regulatory framework which will enable firms to grow and adapt to technological and other market developments.

When

The CfI has been open for a month and closes on 31 October 2024. The outcome, once available, should give clarity on what might be subject to change together with a cost benefit analysis of the inevitable exercise involved in delivering the intended change. Meantime, the FCA will be undertaking a programme of engagement with interested parties. 

Competitiveness objective

The FCA's secondary objective of facilitating the international competitiveness of and growing the UK economy is closely linked with the high standards of care that the regulator has enshrined for consumers within the Consumer Duty. The Consumer Duty itself is formed of high-level outcomes based requirements that enable firms to evolve their own tailored delivery of good outcomes to their retail customers. The high-level outcomes based approach is designed to enable responsiveness, innovation and competitiveness by fostering an environment where market participants can adapt, innovate and compete in a safe and stable market place. 

Related initiatives

There are already a number of review initiatives underway including the ongoing work to assimilate EU law post Brexit.  These include consultations around PRIIPs, consumer credit and the advice-guidance boundary review. Although these initiatives are diverse, there is a common theme of removing highly prescriptive and inflexible rules in favour of high-level rules that better support consumer needs and industry development.

Consumer Duty at the core

The Consumer Duty was a landmark regulatory initiative and the FCA clearly wishes to maximise on the ways in which the Duty can continue to deliver better outcomes for consumers. This CfI is part of that initiative and seeks to develop regulatory thinking around the potential for placing an increasing reliance on the Duty as a means of simplifying existing regulatory requirements by removing those that are similar, broadly similar or which have ambiguous interactions with the Duty.

Examples of where this approach could work include the requirements around what firms should do once consumer harm has been identified where, in addition to the Consumer Duty requirements, there are similar expectations contained in sectoral rules which prescribe certain actions. These could be consolidated into a single set of advice for firms which clearly sets out what should be done in any case of identified consumer harm and which encourages firms to focus on the outcome for the consumer but provides flexibility as to how this might be achieved.

High level v prescriptive v hybrid

All market participants could benefit from a single set of clearly articulated regulatory expectations. The purpose of this CfI is to assess whether high-level rules might do this in a more advantageous way than detailed rules and guidance can.  In particular, assessing whether they might encourage market participants to focus on achieving the right outcomes, and enable firms to adapt the requirements to the specifics of their own business models. They might also be ‘future proof’ and help market participants to adapt to changing market conditions, evolving harms and developing technologies, without becoming obsolete.

It is not ruled out that there may be cases where more detail would be desirable and could be retained for the purpose of providing much needed certainty. Additional and detailed rules could therefore be likely in areas where it is not appropriate to rely solely on the high-level requirements of the Duty because they are needed to address certain sector or otherwise specific harms. There are examples of areas where the removal of detailed rules would need careful thought including in the areas of investments, funeral plans and insurance, where there are specific requirements in place that go beyond the requirements of the Duty.

A hybrid approach combining high-level with detail is also a possibility offering to combine all the benefits of high-level guidance with those of specific detail.

More change

The introduction of the Consumer Duty has inevitably brought costs and other burdens to firms. The possibility of further change brings more of this even though there is the eventual promise of streamlining and of a reduction of the overall regulatory burden. For some firms, more of the high-level outcomes based approach advances the need to become familiar with making subjective decisions, without the support of detailed rules that might provide some comfort or safety net that the decision made is the right one. That said, most market participants will likely welcome the opportunity that has been taken to remove complexity, duplication, confusion and over-prescription with something considered and refreshed that offers the possibility of a reduced regulatory burden and cost with improved consumer benefits.

The FCA is now in a phase of engaging with relevant stakeholders and will consider a range of factors including the need to meet its objectives, the needs of the financial services markets as a whole, the impact on consumers, and a cost-benefit analysis, with a view to delivering a solution which offers proportionate and effective regulation specifically suited to the UK's financial services markets. It is anticipated that the FCA will outline its approach early next year.