Clifford Chance

The UK government recently published its ambitious 10-year 'Growth and Competitiveness Strategy' (the "Growth Strategy") for the UK to once again be the global location of choice for financial services by 2035. This paper follows the House of Lords Financial Services Regulation Committee's critical assessment in 'Growing Pains: Clarity and Culture Required' (the "Report"), which highlighted several shortcomings in how UK regulators have implemented their secondary objective of promoting growth an international competitiveness.

This article considers the key aspects of the Growth Strategy and the Report which are particularly relevant for the insurance sector.

Strategic Vision and Regulatory Context

The Growth Strategy represents a shift in the UK's approach to financial services regulation, aiming to restore the UK as the "global location of choice for financial services firms to invest, innovate, grow and sell their services throughout the UK and to the world." ^[1] This vision directly addresses concerns about the UK's competitiveness position for financial services, where regulatory processes have been frequently criticised as slower and more cumbersome than in other leading financial jurisdictions. The Growth Strategy's development through consultation with firms, consumer groups, and academics reflects the UK government's approach to collaborative design rather than top-down imposition.

The Report served as catalyst for the Growth Strategy, as it provided an examination of the FCA and PRA's progress in delivering their secondary competitiveness objective. The House of Lord's Committee identified that while regulators had made genuine efforts to embed this mandate, significant cultural and operational challenges persist, particularly regarding regulatory speed and responsiveness. The Report emphasised that effective implementation required not merely technical compliance but a fundamental transformation in regulatory mindset toward proactively facilitating growth and innovation while maintaining appropriate consumer protections. ^[2]

The PRA's progress in embedding its secondary competitiveness and growth objective has already produced some benefits for the insurance sector. ^[3] Initiatives include the consultation on establishing a Matching Adjustment Investment Accelerator to enhance firms' role in investment decisions, alongside proposed improvements to the UK framework for Insurance Special Purpose Vehicles (ISPVs) that simplify and accelerate the authorisation process. These measures strategically build upon the Solvency UK reforms to unlock capital and boost the sector's global competitiveness. Furthermore, following a positive response to a HM Treasury consultation, a new UK Captives regime is anticipated, with further consultations in Summer 2026 expected from both the PRA and FCA. In parallel, the FCA is leading a wholesale insurance market review, leveraging its own competitiveness objective to assess and improve the landscape for insurance intermediaries.

Key Reforms and Implementation

• Authorisation Process Modernisation

The PRA and FCA authorisation process was noted as a factor detrimentally affecting market entry and innovation. The Growth Strategy commits to substantial reductions in statutory deadlines for regulatory applications, representing a significant shift toward operational efficiency. Complete authorisations and variations will see processing times reduced from six to four months, while incomplete applications will move from twelve to ten months. Senior manager approvals will now take two months instead of three, decreasing the time required for key appointments.

Beyond these statutory changes, HM Treasury has tasked the UK regulators with more ambitious processing targets, encouraging even faster processing times that could potentially rival jurisdictions like Bermuda, Singapore and Switzerland. The innovative "L-Plates" proposal represents the most transformative change, creating a streamlined authorisation pathway that allows firms to conduct limited regulated activities with appropriate safeguards. This approach should allow market testing and development without the full regulatory burden, recognising that the traditional binary authorisation process may stifle innovation, particularly for products that do not fit neatly into existing regulatory categories.

• Senior Managers and Certification Regime Streamlining

The proposed changes to the SM&CR aim to reduce bureaucratic burdens while maintaining strong accountability frameworks. The removal of the certification regime and reduction in roles requiring regulatory pre-approval represent a shift toward more proportionate regulation that better distinguishes between systemically important functions and those with lesser impact. For larger insurers entities with complex governance structures, these changes could significantly reduce compliance costs and administrative burdens while maintaining oversight mechanisms through the Senior Managers Regime and Conduct Rules.

The PRA has shown its commitment to proportionate regulation through recent initiatives, such as consulting on "significant simplifications to the prudential regime for small banks."^[4] While this example focuses on banking, the principle could extend to insurance regulation in the future, potentially leading to differentiated capital requirements for smaller insurers or those with less complex business models. Adopting such an approach would go beyond the current Solvency UK changes, representing a more sophisticated way to enhance competitiveness while maintaining financial stability.

Consumer Protection and Market Differentiation

• Retail and Wholesale Market Distinctions

The Growth Strategy addresses industry concerns about a perceived "one size fits all" approach to regulation, particularly regarding consumer protection. The House of Lords Committee noted that "overapplication of consumer protection in wholesale markets" creates unnecessary burdens without corresponding benefits, given that wholesale clients are typically "highly sophisticated, well-resourced and advised." ^[5] This distinction is particularly relevant for insurance sectors like commercial and specialty lines, where clients are professional buyers with extensive risk management expertise.

The Consumer Duty has emerged as a focal point in this debate, with concerns about its application to firms that do not directly serve retail customers but participate in distribution chains that ultimately impact retail outcomes. This concern is amplified because the Duty's principles-based application is expansive; it governs activities that can influence retail customer outcomes, with exemptions applying only to a narrow band of 'large risks'. The Chancellor's request for the FCA to report on the Duty's application to wholesale markets by September 2024 represents an opportunity to refine the framework and provide greater clarity ^[6]. For insurers operating across both retail and wholesale markets, this could facilitate more tailored compliance requirements that better reflect the different nature of these activities and client relationships.

• Insurance-Specific Regulatory Reforms

The Growth Strategy includes targeted commitments to reduce regulatory burdens specifically affecting insurers, recognising that "the burden of compliance in the UK is disproportionately high when compared with other jurisdictions." These insurance-specific measures include streamlining product governance and fair value requirements to reduce duplication in approval processes, reforming conduct requirements for commercial and bespoke insurance to better reflect the needs of sophisticated commercial buyers and introducing streamlined regulatory approval for Lloyd's managing agents that acknowledges the unique structure of the Lloyd's market and its importance to London's global insurance standing.

These reforms align strategically with the PRA's insurance-focused initiatives, including the Solvency UK reforms that simplified overly complex requirements and proposed changes to the ISPV authorisation process to enhance the UK's competitiveness as an insurance-linked securities (ILS) destination. The coordinated nature of these efforts demonstrates a comprehensive approach to strengthening the UK insurance sector's global position.

Dispute Resolution Modernisation

The Growth Strategy also sets out a significant reform of the Financial Ombudsman Service (FOS) which include: the adaptation of the "fair and reasonable test" to respect firms' compliance with FCA rules, the introduction of a mechanism for FOS to seek FCA's views on rule interpretation, and the implementation of time limits for complaints collectively aim to refocus FOS on its original mandate as a dispute resolution service rather than a "quasi-regulator."

For insurers, these changes could reduce regulatory uncertainty and create more predictable outcomes in disputes. The requirement that FOS refer potential mass redress events to the FCA acknowledges that systemic issues should be addressed through regulatory rather than ombudsman channels, creating a more appropriate division of responsibilities between these bodies. This is particularly relevant for insurance sectors like motor finance, where the FCA has indicated it will consult on a compensation scheme for customers. ^[7]

Balancing Competition and Consumer Protection

The FOS reforms illustrate the ongoing challenge of balancing consumer protection with competitiveness objectives. While providing clarity and predictability for firms, the changes must maintain appropriate consumer protection, particularly for retail customers who may lack sophistication or resources. The insurance sector, with its mix of retail and wholesale activities, requires a nuanced approach that distinguishes between these different customer types, and their respective protection needs.

Next Steps

The comprehensive regulatory reforms outlined in the Growth Strategy—streamlined authorisations, SM&CR simplification, clearer distinction between retail and wholesale markets, insurance-specific burden reduction, and FOS modernisation—collectively create a more conducive environment for insurance innovation and growth. However, UK insurers must navigate these changes while maintaining strong risk management and compliance practices, particularly given ongoing challenges like climate risk, cyber threats, and economic uncertainty.

The successful implementation of this strategy requires continued collaboration between industry, regulators, and government to ensure that competitiveness enhancements do not come at the expense of financial stability or appropriate consumer protection. For UK insurers, this means engaging proactively with regulatory consultations, adapting business models to leverage new opportunities, and maintaining strong focus on delivering value to customers across both retail and wholesale markets.

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[1] See page 8 Growth and Competitiveness Strategy

[2] House of Lords report: Growing pains: clarity and culture change required.

[3] Competitiveness and growth: the PRA’s second report

[4] See Competitiveness and growth: the PRA’s second report

[5] See from page 51 House of Lords report: Growing pains: clarity and culture change required.

[6] See page 13 Growth and Competitiveness Strategy

[7] https://www.fca.org.uk/news/statements/fca-consult-compensation-scheme-motor-finance-customers