Herbert Smith Freehills LLP | Marina Reason | Kelesi Blundell | Clive Cunningham

United Kingdom

On 25 March, the FCA published FS25/2 (the Consumer Duty Feedback Statement) which provides an interim update – following its July 2024 call for input (the 2024 Call For Input) – on the next steps in the FCA’s work to understand how it could simplify its rules following the introduction of the Consumer Duty.

What are the outcomes the FCA is seeking to achieve?

The question the FCA asked in the 2024 Call For Input was whether the introduction of the Consumer Duty offers the FCA the opportunity to simplify certain detailed and prescriptive Handbook requirements (or even remove them entirely) where similar customer outcomes could be achieved with greater flexibility under the Consumer Duty.

Most respondents to the 2024 Call For Input supported simplification of FCA requirements in principle, but expressed a range of views on how the FCA should approach this and what the timeframe should be. The majority did not want a wholesale review of the Handbook, but encouraged amendments or simplification in discrete areas.

Given the feedback received, the FCA has identified targeted steps to amend or simplify discrete areas of its rules. The outcomes the FCA seeks to achieve are:

  • Greater flexibility (to enable firms to innovate and take advantage of technology, and to tailor approaches to customers’ circumstances, particularly vulnerable customers).
  • Greater predictability (to provide more clarity on the FCA’s priorities and upcoming consultations, helping firms to plan).
  • Improved efficiency (to reduce the time, cost and complexity involved in meeting FCA expectations, while ensuring good customer outcomes).

The FCA is keen to move fast where it can and intends to use an accelerated consultation process to act immediately on measures where there is a clear case for change and where there is stakeholder appetite to go quickly.

A lighter Handbook?

The Consumer Duty Feedback Statement provides an indication of how the FCA may continue its move to more outcomes-based regulation and shows the FCA’s current thinking about areas where rules can be (further) simplified because application of the Consumer Duty provides adequate protections.

In the Consumer Duty Feedback Statement, the FCA suggests the following (among other initiatives):

  • International application of the conduct rules (including requirements under the Consumer Duty). Starting with a review in the insurance sector, the FCA will examine whether its conduct rules should apply to firms providing products or services to customers based outside the UK, while adhering to international obligations.
  • Consistency in definitions. The Handbook definitions of retail customers and small and medium-sized enterprises (SMEs) are acknowledged to be complicated and they differ across sectors. This can make it challenging for firms to apply the rules consistently. The FCA therefore proposes to review these core definitions to aid firms’ understanding and simplify application of the rules.
  • CASS short-term improvements. In Q4 2025, the FCA will consult on updating specific requirements in the Client Assets sourcebook (CASS) in relation to amending record-keeping requirements for certain due diligence relationships, broadening reconciliation rules in certain circumstances, and adding flexibility to rules on removal of interest owed to firms. The FCA also sees longer-term opportunities to assess whether existing CASS rules remain appropriately aligned with how firms do business and where associated risks arise.
  • Clarifying aspects of the Consumer Duty. The FCA intends to engage with firms and other stakeholders to provide more clarity and certainty on the following aspects of the Consumer Duty:
    • Rules on product governance and fair value: how do they interact with each other and with other Handbook rules?
    • Consumer Duty application through distribution chains: how could the FCA provide more certainty on its expectations under the Consumer Duty for firms in retail distribution chains, particularly those that do not interact directly with retail customers? This includes, for example, how firms should share information within the chain, and how the Consumer Duty applies proportionately to firms with a more indirect role.
  • Targeted clarifications of FCA Handbook materials. In the second half of 2025, the FCA plans to consult on measures to address confusing, outdated or potentially conflicting requirements, including addressing outdated references to Principles 6 and 7, together with the Treating Customers Fairly (TCF) initiative, and retiring specific pieces of outdated non-Handbook guidance.
  • SYSC review. The FCA intends to explore options for reviewing the Senior Management Arrangements, Systems and Controls sourcebook (SYSC), which has expanded over time and can be hard to navigate.

Next steps for the FCA

The FCA’s intended next steps involve further stakeholder engagement on a number of its proposed actions, including through an in-person summit in summer 2025, with attendees from other UK authorities, firms, trade associations and consumer organisations. In September 2025, the FCA will publish a further statement setting out in more detail its programme of work and the progress made to date.

This article first appeared on Lexology | Source