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Clifford Chance

Clifford Chance


FCA provides outlook for future of financial regulation

The Financial Conduct Authority (FCA) published its 2019/20 business plan on April 17. The plan sets out the regulator’s key areas of focus for the coming year, as well as giving some insight on the FCA’s longer-term approach to regulation. Notably, the FCA indicates after Brexit it may take a more flexible approach to regulation, aiming to deliver outcomes that are in line with global standards but less burdensome in terms of rules.

Many of the priorities set out in the business plan build on the FCA’s work to date and will be familiar to insurers. These include how to treat vulnerable customers; the use of customer data; and operational resilience.

With respect to insurance, the FCA highlights access and exclusion in general insurance as a key concern. It points out customers with very particular requirements (for example, travellers with existing medical conditions) may find it hard to find cover to meet these needs and may wrongly assume they are uninsurable.

Another focus is poor governance and oversight in insurance distribution chains, with the FCA saying this can result in higher prices and lower service levels for customers.

The FCA also highlights two new long-term and cross-sector areas of focus. The first is demographic change. The FCA recognises  financial resources, needs and challenges are different for each  generation and wants to take a broad look at how regulation  should work in this context. While the FCA has in the past cited  housing finance, long-term saving products and pensions as particular areas of focus, it is here carrying out a much wider and cross- sector review of these issues. Insurers will no doubt be required  to consider how they address intergenerational issues as the FCA explores this theme.

The second area of focus is the FCA’s future approach to financial conduct regulation. The FCA’s chief executive, Andrew Bailey, discusses this further in a speech published on April 23, as well as in the FCA’s latest podcast.

Bailey suggests the UK may in future take a different approach to regulation, after Brexit and once it is no longer bound to follow the EU approach. He is keen to stress he does not envisage a move to “light touch” regulation.

However, he highlights the UK, as a common law jurisdiction, has an approach to rule-making that is based on evolution through  experience, as opposed to European jurisdictions, which have civil law and generally rely more on codification of rules. Accordingly, in future the FCA may choose to adopt a more outcomes-based approach to regulation.

Bailey suggests this could be less burdensome by applying fewer prescriptive rules while not compromising on delivery of customer protection outcomes. Bailey also emphasises UK regulation should aim to meet global, not just regional, standards.

This article first appeared in Insurance Day