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The FCA Moves to Thin Its Insurance Conduct Rulebook

The Financial Conduct Authority wants to take a scalpel to the rulebook that governs how insurers and brokers deal with their customers. In a consultation published on 29 June, CP26/22, the regulator proposes to narrow the territorial reach of its core conduct sourcebooks, remove a clutch of disclosure requirements, sharpen the line around advised sales and swap the euro figures in its minimum cover rules for sterling. The window for responses closes on 4 September, and the FCA says the resulting changes would come into force shortly after they are made, with no long run-in.

This is a conduct story, not a capital one, and the distinction matters. A day earlier the prudential debate was about the Prudential Regulation Authority and how much liquidity Solvency UK insurers must report. CP26/22 comes from the other regulator and asks a different question: not whether an insurer can pay claims, but what a customer must be told and which firms have to follow British selling rules at all. The two sit in separate rulebooks, and the FCA’s package is squarely about the second.

The headline change is geographic. The Insurance Conduct of Business sourcebook, known as ICOBS, sets out how firms must treat customers taking out individual policies. Under the proposals it would be disapplied where both the customer’s habitual residence and the location of the insured risk sit outside the United Kingdom. Where either of those is in the UK, ICOBS would continue to apply in full. A parallel change narrows PROD 4, the product governance sourcebook, so that it falls away where a product is distributed only to customers outside the UK and all policyholders, and any relevant risks, are located abroad.

For the London market that is a meaningful carve-out. Lloyd’s syndicates and company insurers write a large book of overseas business from the UK, and applying the full weight of British retail conduct rules to a policy sold to a customer in, say, Singapore has long struck the market as an odd fit. The FCA’s own framing is that its rules should follow the UK customer and the UK risk, not the mere fact that a contract was arranged in London. Brokers placing non-UK business, and the international writers behind them, are the clearest winners.

Alongside the territorial changes comes a pruning of disclosure. The FCA proposes to drop several prescriptive obligations, including the requirement to tell customers whether a firm is acting as insurer or intermediary, to disclose ownership interests of 10 per cent or more between intermediaries and insurers, to flag exclusive placement arrangements, and to spell out the nature and basis of the remuneration a firm receives. Not everything goes. Intermediaries would still have to disclose fees to all customers before those fees are incurred, and to disclose commissions to commercial customers on request.

There are two more moving parts. The rules on professional indemnity insurance, the cover that brokers must themselves hold, still carry minimum limits denominated in euros, a legacy of the EU’s Insurance Distribution Directive. The FCA would convert those into sterling at an appropriate rate, tidying up a currency mismatch that has outlived the UK’s membership of the bloc. And the boundary around advice would be redrawn to create a cleaner split between sales that involve a personal recommendation and those that do not, with non-recommendation guidance pushed into the same regime as non-advised sales.

The obvious question is what all this does to consumer protection, and here the FCA is asking readers to trust a framework rather than a checklist. Its answer is the Consumer Duty, the outcomes-based standard that has applied since 2023 and requires firms to deliver good results and communications that are clear, fair and not misleading. The regulator’s logic is that once the Duty is in place, long lists of mandated disclosures become belt-and-braces, and that firms should exercise judgement about what customers actually need to know. Strip out the prescription, the argument runs, and the Duty still holds the floor.

That is a coherent position, but it is not costless, and it deserves scrutiny rather than applause. Prescriptive disclosure is blunt, yet it is also predictable and easy to supervise. Replacing it with judgement calls under the Duty shifts more discretion to firms and more interpretive work to the regulator, and it makes redress harder to pin to a bright line when something goes wrong. The territorial carve-outs are easier to defend on wholesale, cross-border business than they would be on anything with a retail flavour, which is why the FCA has been careful to keep UK customers and UK risks fully inside the perimeter.

Politically, the package is of a piece with the government’s push to make regulation a lever for growth. The FCA has been told, in terms, to weigh competitiveness alongside protection, and simplifying a rulebook that international insurers grumble about is an easy way to show willing. The reform is quieter than the listing overhaul or the push on private markets, but it speaks to the same instinct: that some of the rules inherited from the EU era are heavier than the risks they address.

Whether that instinct is right will be tested in the responses. Trade bodies for brokers and the London market are likely to welcome the direction; consumer advocates will want to know what happens to the customer who falls through a gap the old disclosures used to cover. The FCA has set a tight clock, with the changes due to bite almost as soon as they are finalised. On this evidence it is not minded to wait.

Finance & Markets Correspondent
Covers: Finance, capital markets, technology investing

David Whitmore covers the intersection of capital and code — the funding rounds, market structures and policy moves that shape how money flows through the technology economy.