On 14 May 2025, the Financial Conduct Authority (FCA) published a new consultation paper (CP25/12) setting out its proposals to simplify the sections of the FCA’s Handbook which apply to insurance firms.

The consultation paper comments on the feedback it received in relation to its previous discussion paper on the Regulation of Commercial and Bespoke Insurance Business (DP24/1) and sets out the FCA’s proposals in relation to further areas it has identified where it considers additional changes could be beneficial.

CP25/12 and DP24/1 are part of a broader effort by the FCA to look for opportunities to simplify and modernise its insurance regulatory framework and to deliver proportionate regulation that promotes effective competition. These efforts are in line with its new secondary objective to facilitate the international competitiveness and growth of the UK and its commitment to identify areas where the FCA Handbook can be simplified by removing outdated and duplicative requirements after the implementation of its Consumer Duty.

The key changes which are being consulted on are:

• Implementation of a new definition of “contracts of commercial or other risks”: Taking account of the feedback received in DP24/1, the FCA is proposing to implement a new definition of “contracts of commercial or other risks” which will be used to determine which insurance contracts and customers fall within the scope of the rules in the ICOBS and PROD sourcebooks in the FCA Handbook and the Consumer Duty.

The new definition of “contracts of commercial or other risks” will:

• exclude customers of non-investment insurance risks who fall within the thresholds set out in the definition of “eligible complainants” which is currently used to determine the jurisdiction of the Financial Ombudsman Service i.e. it will not include consumers, micro-enterprises or small businesses as defined in DISP; and
• will incorporate the product-specific aspects under the current “contracts of large risks” definition e.g. for aviation, marine, aircraft and railway rolling stock risks.

The FCA’s proposed amendments are intended to reduce the regulatory burden and allow greater flexibility for firms who are dealing with larger, more sophisticated commercial customers while ensuring that smaller commercial customers continue to be adequately protected. The change would also reduce the number of firms and customers which would be covered by the Consumer Duty.

• Removal of the requirement for annual product reviews: The FCA has also proposed that firms offering non-investment insurance products will no longer be required to complete a review of those products at least every 12 months. The change is intended to recognise that annual reviews may not be proportionate for certain products where the risk of harm arising is low.

Under the FCA proposals firms would, however, still be required to carry out product reviews at a frequency which is appropriate for the risk presented by the product. Firms would need to document the frequency of reviews for each product based on their assessment of this risk. The changes will mean that for some products the time between reviews could be longer than 12 months, but the FCA would expect that reviews may need to occur more frequently for higher risk products.

• New lead firm model for product governance: The FCA has proposed introducing a new option in relation to products which have more than one manufacturer. Currently, where insurance products have more than one insurer e.g. where there is co-insurance, or have an insurer and intermediary co-manufacturing a product, both parties will be manufacturers of the products and will be responsible for complying with the obligations applicable to manufacturers of insurance products in PROD 4.

The FCA’s new option would allow firms to agree to appoint a “lead firm” which would be solely responsible for complying with the PROD 4 obligations. The FCA’s intention in making this change would be to remove the requirements for multiple firms to duplicate product governance reviews and processes and to reduce costs for firms as a result.

The FCA did consider allowing insurance distributors who co-manufacture insurance products to be the lead firm, but has decided to only allow insurers and Lloyd’s managing agents to perform this role.

In CP25/12 the FCA clarified that under the new rules the “lead insurer” would be fully responsible for complying with PROD 4.2 and would be solely responsible for any rule breaches and any redress payable to customers (but acknowledges that firms may agree between themselves to share the costs of redress).

• Extending the bespoke contracts exclusion: The FCA plans to broaden the scope of the “bespoke contracts exclusion”, which excludes tailor-made insurance contracts from the scope of the product governance rules set out in PROD 4, so it also applies to insurers. The exclusion currently only applies to intermediary co-manufacturers.

The FCA is also proposing to publish a list of indicators of a bespoke contract to give firms further guidance on which insurance contracts will be considered to fall within the scope of the exclusion.

• Removal of 15 hours training requirement: The FCA is proposing to remove the current fixed requirement for certain employees of insurance distributors to undertake a minimum of 15 hours of training and development a year.

Firms will still be required to ensure that their employees are appropriately trained to ensure they have the necessary skills, knowledge and expertise to carry out their role, but the fixed requirement to complete a certain amount of training will be removed.

The FCA’s proposals recognise that the fixed requirement may not be appropriate for some smaller firms and may only be appropriate for particular roles within firms. The FCA would, however, continue to expect the individuals performing complex roles to undertake more than 15 hours in many circumstances.

• Amendments to employers’ liability notification and reporting requirements: The FCA is proposing to remove the requirement for firms to notify it when they begin carrying on employers’ liability business and the annual requirements for firms to obtain a director’s certificate and annual report.

This proposed change is intended to reflect that improvements in the ability of customers to trace employers’ liability insurers and policies mean that these requirements are no longer needed.

In CP25/12 the FCA also identified a number of potential rule changes it is considering and on which it is requesting feedback. These include:

• Application of rules to firms conducting insurance business outside of the UK: The FCA acknowledges that London is a key market for international insurance activity and that many firms in the UK also offer services to non-UK customers. Where this is the case often local jurisdictions have their own regulatory requirements in relation to the sale and distribution of insurance products which apply.

The FCA has an “activities based” regulated activities regime which means that the UK regulatory regime generally applies to regulated activities performed within the UK regardless of where the customer is actually located. The FCA noted in the consultation paper that, in some circumstances, this can result in insurance firms based in the UK being subject to overlaps between its rules and the rules applicable in overseas customers’ jurisdictions.

ICOBS and PROD 4 already contain a number of provisions which disapply those rules where customers are not habitually resident in the UK and the risk insured is located outside of the UK. However, the FCA is now considering going further to disapply these rules generally where the customers and the insured risks are both located outside of the UK. These changes would only apply in relation to non-investment insurance business.

• Consequential amendments following the implementation of the Consumer Duty: Following the implementation of the Consumer Duty, the FCA is also now considering removing product specific sections of the FCA Handbook in relation to payment protection insurance, packaged bank accounts and guaranteed asset protection (GAP) insurance.

The FCA is considering whether the implementation of the Consumer Duty and specific regulatory action in relation to these products has made these rules superfluous.

Next Steps

CP25/12 and DP24/1 are key examples of how the FCA is interpreting its secondary objective to promote competition and the current UK government’s challenge to remove unnecessary or disproportionate regulation. The changes, if implemented, are anticipated to have a significant impact on how commercial insurance is regulated in the UK. The expectation is that these changes should also result in cost savings for insurance firms operating in consumer lines.

The deadline for responses to the FCA’s proposals in CP25/12 is 2 July 2025.