UK Consumer Duty rule review: FCA sets out ‘targeted steps’ to simplify requirements for firms

The FCA’s further shift towards outcomes-based regulation will require a corresponding change in mindset and approach for firms

There are 4 main strands to the FCA’s workplan in its feedback statement, which we consider in more detail below:

• Reviewing the foundations; 
• Future-proofing disclosure;
• Reducing the administrative burden; and
• Streamlining requirements.

However, at an overarching level, the statement shows the FCA continues to consider itself, more and more, an outcomes-based regulator. Whilst it isn’t engaging in a widespread repeal of granular rules (committing instead to a more limited approach, targeting certain rules in certain specific areas), the statement indicates a further evolution in regulator’s view of its approach. 

Some issues to consider as the industry adjusts to this includes:

• Additional – or at least enhanced - skills will be required to identify, and make the judgment calls that will be necessary, where compliance with more prescriptive rules still fails to generate the necessary outcomes. There will need to be a balancing act between consideration of the ‘black letter’ rules and having a more finely tuned sense of the risk appetite within the regulator.
• Also tying in with the above, the approach to risk management within businesses is likely to change, with the legal, risk and controls functions becoming more interwoven. A key question here will be how actual outcomes are monitored against those intended, and who will have overall responsibility for risk, given that Consumer Duty champions are no longer required. This demonstrates the importance of good MI, monitoring, and reporting to the relevant stakeholders and ultimately senior management to ensure the firm’s strategy complies with both rules and outcomes requirements. It also brings the importance of properly documenting the rationale for actions and decisions into stark relief.
• The ever-evolving question of what “good outcomes” for customers looks like continues to cause uncertainty, which could be set to increase with the growing reliance on outcomes rather than rules. This includes:
  • The risk that yesterday’s actions could be judged by today’s standards. This is something that has caused concerns for firms in their interactions with the Financial Ombudsman Service (FOS). Some comfort may be drawn from the fact that the government’s recently published action plan on a new approach to ensure regulators and regulation support growth indicates that we could be about to see significant changes to the FOS. With a view to focusing on the competitiveness of UK financial services, the FCA’s new five-year Strategy (published alongside the feedback statement) also includes reviewing the redress regime as one of its planned actions under its priority theme of supporting economic growth. There is reference to how the approach to redress can create uncertainty for consumers, firms and their investors, with the potential to hold back investment and innovation.
  • Tension between requiring firms to deliver good customer outcomes and the FCA’s priority theme of rebalancing risks as set out in its new Strategy (reflecting a key part of the government’s economic growth mission in the context of financial services). On consumer risk, the FCA acknowledges in its Strategy that while ‘the majority may benefit’ from taking more (informed) risk regarding their finances, ‘a minority may not get the outcome for which they hoped.’ However, in relation to helping consumers navigate their financial lives it also commits to making the Consumer Duty integral to firms’ treatment of customers. The contradiction is clear; how it will be addressed remains to be seen.
• When engaging further with the FCA in the coming months on the other changes that it has proposed in the feedback statement, firms will need to consider the cost-benefit of having less prescriptive rules - which may provide more flexibility but also requires a careful exercise of judgement, strong governance frameworks and potential remediation/litigation risk further down the line. This may be mitigated - or possibly in certain ways exacerbated - by some of the FCA’s declared intentions for supervision in its new Strategy which include:
  • Replacing the two-year supervisory programmes for the largest regulated firms with a more flexible approach, with less intensive supervision for ‘those demonstrably seeking to do the right thing’. However, with the FCA planning to loosen its supervisory leash where it thinks it’s safer to do so, this again highlights the importance for firms of properly documenting the rationale for actions and decisions.
  • More direct contact points for firms, providing better access to the FCA (and providing the FCA with improved market intelligence). This suggests that the FCA will expect a more proactive approach from firms in seeking its guidance – again, emphasising the importance of the above point on appropriate skills.
  • Significantly streamlining its supervisory priorities and publishing a small number of market reports once a year setting out the risks and opportunities it is seeing.
  • Sharing more insights from its supervisory work. In enforcement, this focus will mean a streamlined portfolio of cases, with the same number of outcomes but delivered faster.

The FCA has also published its new five-year Strategy 2025-30 alongside the feedback statement. We have addressed this publication in this Our Thinking article.

How can Hogan Lovells help?

• Our depth and breadth of knowledge of the legal, regulatory and policy drivers affecting financial services means that we can help you to capitalise on further opportunities to shape your regulatory and policy environment as part of the FCA’s Consumer Duty rule review. This includes its planned in-person summit this summer to discuss areas where feedback from the July 2024 CfI was mixed.
• The combination of our legal and consulting teams is ideally suited to assist you in reviewing how risk is currently managed within your business, and how this might have to be adapted with the shift to increasingly outcomes-based regulation. We can help you in developing approaches to decision-making based on outcomes rather than specific rules. Our combined offering can provide you with a full range of services, and clear guidance on how the solutions can be applied within your business.
• If you would like to discuss how we can help you, please reach out to any of the people listed in this article or your usual Hogan Lovells contact.

Context for the Consumer Duty rule review: international competitiveness and economic growth

Coinciding with the publication of its first report on how it had taken forward its new secondary UK competitiveness and economic growth objective, in July 2024 the FCA published a Call for Input (CfI) on how far it may be appropriate and beneficial to place greater reliance on the Consumer Duty instead of its specific rules and guidance. This rulebook review was already on the cards before the July 2024 General Election and was incorporated into the current government’s Plan for Financial Services (January 2024) as part of its policy priority to enhance the international competitiveness of the UK’s financial services sector.

The feedback statement to the CfI follows the FCA’s January 2025 response to the government’s request for ideas to support its growth mission for the UK economy and the government’s March 2025 three-point action plan for ‘A new approach to ensure regulators and regulation support growth’ (Action Plan). See this Our Thinking article for more on the financial services aspects of the Action Plan.

Reviewing the foundations

Under this strand, the FCA is looking to address how it regulates and the scope of its rules, including considering how they apply to customers based outside the UK and reviewing some core definitions. It wants to support its statutory objectives more efficiently and flexibly, taking into account market developments, new technologies and the Consumer Duty.

Confirmed new actions

• Carrying out a mortgage rule review, with a consultation paper and discussion paper on mortgage changes in May and June 2025 (see this Our Thinking article).
• Reviewing the international application of the FCA’s conduct rules in the insurance sector (ie where firms conducting international business need to comply with both UK rules and those of the customer’s jurisdiction), with discussion questions to be asked by summer 2025.

Proposed new actions (subject to stakeholder feedback)

• Ensuring consistency in the FCA’s Handbook definitions, specifically the definitions of retail customers and small and medium-sized enterprises (SMEs). The FCA will shortly consult on proposed changes to the definition currently used in the insurance sector to determine which SME customers need protecting under the rules applying to retail customers (see ‘Reducing the administrative burden’ below).
• Reviewing the international application of the FCA’s broader conduct rules.

Current ongoing related work

• Advice Guidance Boundary Review
• Reforming the Consumer Credit Act
• Review of the Senior Managers & Certification Regime
• Call for Input on Modernising the Redress System (see this Our Thinking article)
• Discussion chapter in the Markets in Financial Instruments Directive Organisational Regulation Consultation Paper
• Review of provisions from assimilated law

Future-proofing disclosure

This will involve allowing firms more flexibility to tailor customer-facing communications in a way which promotes consumer understanding and allows for more modern customer journeys. The aim is to place more reliance on the Consumer Duty to help firms innovate to support consumer understanding and improve customer outcomes.

Confirmed new actions

• Looking at mortgage disclosure requirements. The June 2025 mortgage rule review discussion paper (see ‘Reviewing the foundations’ above) will include discussion on consumer disclosure requirements within the mortgage sector with facilitating firm innovation and consumer understanding in mind.
• Reviewing the financial promotion rules for consumer credit. The FCA will do this alongside HM Treasury’s review of the Consumer Credit Act. Within the next year, it will consult on removing unnecessary prescription, updating outdated requirements, and improving alignment with the Consumer Duty. 

Proposed new actions (subject to stakeholder feedback)

• Reviewing retail banking disclosures with a view to removing prescriptive disclosure requirements where appropriate and making the rules more flexible to allowing more tailoring of communications for firms’ customers. The FCA specifically states that this will include consideration of requirements for the summary box for savings accounts.
• Discussing with stakeholders whether to review rules on the disclosure of Annual Percentage Rates (APRs). The wording of the feedback statement suggests that this might be incorporated into the planned consultation on consumer credit financial promotions.

Current ongoing related work

• Consulting on a new product information framework for Consumer Composite Investments

Reducing the administrative burden

Here the FCA will look to give firms more flexibility in how they apply its requirements as part of a more outcomes-focused regime, reducing unnecessary administrative burdens while maintaining high standards (including through the Consumer Duty).

Confirmed new actions

• Simplifying the rules for insurance and funeral plans. Following its discussion paper on the regulation of commercial and bespoke insurance business, the FCA is planning to consult by summer 2025 on the proposals from the discussion paper. Given some of the feedback to the Call for Input, the consultation will also propose further changes to the FCA’s rules, including:
  • allowing firms greater flexibility over how often they review product value under the product governance rules; 
  • removing the specified minimum hours of training and development required for insurance employees.

  Further changes which should be considered in the future (again, following feedback to the Call for Input) are:

  • limiting the application of conduct rules, such as the Duty’s requirements, outside the UK;
  • reviewing some of the more detailed and prescriptive product-specific rules in the Insurance Conduct of Business Sourcebook, including those for packaged bank accounts and GAP insurance;
  • offering funeral plan providers greater flexibility regarding how often they review products under the product governance rules.

The FCA will seek views on these further changes alongside its planned consultation.

• Reviewing Assessment of Value reporting for asset management. The FCA plans to consult later in 2025 on changes to the requirement for asset managers to report annually on their value assessments, aligning with its broader approach to value assessments.
• Amending specific record keeping and reconciliation requirements in the FCA’s Client Assets sourcebook (CASS). The FCA will consult later in 2025 on updating the following CASS requirements relating to:
  • amending record-keeping requirements for certain due diligence relationships;
  • broadening reconciliation rules, to allow the use of records from sources that were not envisaged when the rules were introduced and to recognise scenarios where an external statement may be receipted less frequently, for example when a fund manager in the normal course of business will only provide the statement quarterly;
  • adding flexibility to rules on removal of interest owed to firms.

  The FCA also states that, as industry practices continue to evolve, it sees longer-term opportunities to assess whether existing rules remain appropriately aligned with how firms do business and where associated risks arise.

Proposed new actions (subject to stakeholder feedback)

• Exploring options for reviewing the Training and Competence sourcebook and competence requirements in other sourcebooks, using insights from its insurance sector work, where appropriate, to help guide its approach.
• Reviewing the reporting requirements that were introduced under its general insurance pricing practices intervention.
• Engaging with stakeholders about providing more clarity on how the rules on product governance and fair value in the Duty interact with each other and those elsewhere in the Handbook.
• Clarifying the application of the Consumer Duty through supply chains. The FCA plans to engage with firms to consider how to provide more certainty on its expectations under the Duty for firms in retail distribution chains, particularly those that do not interact directly with retail customers - for example, how firms should share information within the chain, and how the Duty applies proportionately to firms with a more indirect role.

Current ongoing related work

• Review of ongoing advice rules
• Transforming data collection
• Engagement paper on contactless payment limits (see this Our thinking article)

Streamlining requirements

The FCA will engage in targeted work to remove or review outdated requirements, or areas of unnecessary complexity to reduce regulatory costs and provide greater clarity about its expectations so that firms can help deliver better consumer outcomes.

Confirmed new actions

• Piloting a smaller firm guide in 2025 with engagement from relevant stakeholders including the Smaller Business Practitioner Panel. The aim is to give further support to smaller firms in implementing outcomes-focused regulation. The FCA will then consider whether it is appropriate to roll this guidance out more broadly.
• Retiring outdated guidance later in 2025. This will include guidance in the mortgage and consumer finance sectors and Treating Customers Fairly guidance.
• Withdrawing historic supervisory communications, while keeping them publicly accessible.  The FCA plans to start in Q2 2025 by reviewing and withdrawing all Dear CEO letters and portfolio letters pre-dating its 2022-25 strategy, except where it identifies any exceptions. The documents will, however, remain publicly accessible. The FCA will update the market on its approach and implementation throughout Q2 and will also look at how it can more regularly review and withdraw outdated communications in future.
• Consulting on targeted clarifications of its Handbook materials later in 2025, including: 
  • addressing outdated references to Principles 6 and 7 and the Treating Customers Fairly initiative;
  • streamlining and simplifying its investment and borrowing powers rules in Chapter 5 of the Collective Investment Schemes sourcebook (COLL);
  • retiring specific pieces of outdated non-Handbook guidance, as referred to above.
• Improving accessibility of its rule review feedback tool which is part of the Rule Review Framework. The FCA notes that it is also updating the FCA Handbook website, with a beta version of the site launching this summer. Improvements to the accessibility of the feedback tool will include allowing stakeholders to access and submit evidence directly from the FCA Handbook. The FCA also invites input on potential improvements to ensure it remains an effective platform for ongoing feedback.

Proposed new actions (subject to stakeholder feedback)

• Exploring options for its Senior Management Arrangements, Systems and Controls sourcebook (SYSC) with stakeholders, several of whom fed back that it can be confusing.

Current ongoing related work

• Updating the FCA Handbook website
• Rule Review Framework

Authored by Charles Elliott and Virginia Montgomery.