UK: FCA Call for Input: Review of the Handbook in light of the Consumer Duty

Why should I read this?

Earlier this year, the Labour Party set out its plans for financial services in a policy document “Financing growth – Labour’s plan for financial services”, including six policy priorities.  The second of those priorities was to:

“Enhance the international competitiveness of the UK’s financial services sector by pursuing a more joined up and innovation-centred approach to regulation and supervision, streamlining the regulatory rulebook in line with the Consumer Duty, strengthening our international engagement in financial services, and building a more collaborative relationship with the EU” (emphasis added).

Labour’s policy document was drawn up with the input of ten senior financial services figures and it is thought that the suggestion that the FCA Handbook might sensibly be rationalised in light of the Consumer Duty came from that panel.

Now that Labour has formed the UK Government, the FCA has duly issued a Call for Input “Review of FCA requirements following the introduction of the Consumer Duty”, so that this element of the second financial services priority can be undertaken.

See our previous client briefings:

• The UK Consumer Duty: The impact on your third party contracts
• The Consumer Duty: a significant shift in retail financial services
• Implications of the new Consumer Duty for Asset Managers

What do I need to know about the call for input

The FCA is seeking to understand whether, where and how it can simplify the requirements in the FCA Handbook, through greater reliance on high-level rules, while ensuring it continues to support and protect consumers.

Streamlining

The FCA believes that the outcomes-based nature of the Consumer Duty has allowed firms to adapt and innovate in a way that helps consumers and is responsive to technological change and market developments. 

It now wants to investigate whether it could help firms, including new entrants, and support innovation by removing detailed and prescriptive requirements that cover similar issues to the Duty, and if similar customer outcomes could be achieved with greater flexibility.

How far is it appropriate and beneficial to place greater reliance on the Consumer Duty in place of specific rules and guidance

The FCA believes that it may be possible to streamline rules and guidance if:

• similar materials relate to broadly equivalent requirements or expectations of conduct;
• it is possible to achieve substantially the same consumer outcomes while giving firms more flexibility and greater ability to innovate - reliance on high-level standards may better support flexibility and innovation than more detailed or prescriptive rules, although the FCA notes than in other circumstances, detailed and/or prescriptive rules may work better and in yet others, a hybrid approach may be preferable; and
• there is a lack of clarity on how requirements under the Consumer Duty and other rules interact.

Secondary competitiveness objective

The FCA considers the call for evidence to be consistent with their secondary objective to facilitate the international competitiveness of the UK economy by helping to ensure regulation remains effective, streamlined and comprehensible, maximising the benefit of the Consumer Duty.

No change to the Consumer Duty

The FCA is not seeking responses with suggestions for changes to the Consumer Duty.

Existing reviews

The FCA is already consulting on related matters via:

• The Rule Review Framework - an ongoing feedback tool focused on how FCA rules are working; and
• The Smarter Regulatory Framework (“SRF”) – (with HM Treasury) the transfer of assimilated EU financial services law (until recently known as retained EU law (“REUL”)) into the FCA Handbook and making appropriate changes to suit the domestic context.

Divergence from EU rules

While the Consumer Duty, and any rationalisation of the FCA Handbook as a result of the call for input, do not involve a direct divergence from assimilated EU law, every additional difference between UK and EU, runs the risk of making it more difficult to bring about financial services collaboration with the EU. 

The EU continues to insist that the greater the exposure to a third country’s market, the closer the alignment must be between its laws and those of the EU for there to be collaboration.  EU financial service regulation is generally process-based, not outcome-based, and further steps towards the outcomes based regulation epitomised by the Consumer Duty may therefore make that collaboration harder to achieve.

Next steps

Responses should be submitted via the FCA’s webpage “Call for input: Review of FCA requirements”, or by email to ReviewOfRequirementsCFI@fca.org.uk by 31 October 2024.  We can help you with the drafting and preparation of any submission you want to make to the call for evidence.

The FCA plans to publish how it will proceed with the review of Handbook requirements in early 2025.

How Eversheds Sutherland can help

Whether it’s helping you to get authorised, developing new products, implementing large regulatory change or supporting you on ensuring that your processes and policies are fit for purpose, our team is well placed to help you. Our team has extensive experience of what the regulators expect and what the market requires and our technical and industry insight can ensure that your projects are managed efficiently to achieve a first class result.