The FCA has published two important consultations for its programme of regulatory reforms to the UK insurance market; CP26/22 (Simplifying the Insurance Rules) and CP26/23 (Consumer Duty: Scope and Proportionality). Taken together, the proposals signal a shift towards a more proportionate and internationally competitive framework and, in particular, anticipate some welcome change to the application of the Consumer Duty in wholesale markets.

Indeed, CP26/23 delivers on a commitment the FCA made following the Chancellor's July 2025 Mansion House speech, in which she tasked the FCA with assessing the impact of the Consumer Duty and whether it unduly affects wholesale activity. CP26/23 acknowledges and attempts to address the fact that the Duty had in some cases been applied more broadly than intended in wholesale markets and complex distribution chains, leading to unnecessary cost and complexity without clear benefits for retail consumers.

More broadly, the FCA's overarching aim across both consultations is clear: to reduce regulatory burden without compromising consumer protection. The proposals achieve this by removing rules that add limited value, narrowing the overseas reach of UK conduct requirements, and recalibrating the Consumer Duty to operate more proportionately. For insurers, Lloyd's managing agents, MGAs and intermediaries (particularly those with significant international business), the consultations will be welcomed. Each of the key proposals is considered in turn below.

CP 26/23: Recalibrating the Consumer Duty: Scope and Proportionality

CP26/23 addresses a growing concern that the Consumer Duty has in practice been applied more broadly than the FCA originally intended, particularly in wholesale markets and complex distribution chains.

Non-UK Business

The FCA's central proposal is to limit the Consumer Duty to retail business involving customers who are usually resident in the UK. This should create a more consistent territorial framework across the insurance conduct regime without adversely impacting UK customers. As a result, firms would no longer need to apply Consumer Duty obligations, including product design, communications testing and outcome monitoring, in respect of non-UK retail customers, significantly reducing the burden for firms with substantial international business.

Co-manufacturers

In addition to the territorial changes, the FCA proposes new provisions in PRIN 3A to clarify which activities fall within scope and to refine the problematic concept of "material influence". Under these proposals, the Society of Lloyd's would be expressly excluded from the Duty's scope, with responsibility instead sitting with managing agents that conduct retail business.

The current concept of "co-manufacturing" would also be replaced with a clearer framework which would require a clearly documented allocation of responsibility for the firm(s) which exercises substantive control over a product. Firms with substantive control would be treated as principal manufacturers and subject to the full range of Consumer Duty obligations. Those with a more limited role would be classified as secondary manufacturers and face a narrower set of responsibilities. For MGAs, intermediaries and co-insurers who may have varying degrees of involvement in product design, underwriting criteria or distribution strategy, this clarification should reduce uncertainty about where responsibility lies.

Governance

On governance, the FCA has confirmed that firms should generally only be responsible for their own activities and should not be expected to oversee the compliance of every other firm in the distribution chain. Information-sharing obligations would be refocused on data that genuinely assists in assessing customer outcomes, rather than the extensive exchanges that have become common in some sectors.

Significantly, the FCA has also confirmed that firms do not need to produce a standalone Consumer Duty board report, and that reporting should instead be proportionate to the firm's role and activities. For many firms, governance frameworks have become unnecessarily complex, and the FCA is now signalling that a streamlined, risk-based approach is not only acceptable but actively encouraged.

CP26/22: Simplifying Insurance Rules

CP26/22 is intended to deliver a more proportionate approach to regulation by (a) delivering UK protections where reasonably expected but not where there is limited connection to the UK; and (b) avoiding prescription where it delivers less benefits and can hinder innovation.

Narrowing the Territorial Scope of ICOBS and PROD 4

CP26/22 proposes to simplify the application of the Insurance Conduct of Business Sourcebook (ICOBS) and product governance regime (PROD 4), which currently apply even where the customer and the insured risk are located outside the UK, creating unnecessary overlap with local regulatory requirements in other jurisdictions.

The FCA proposes that ICOBS will not apply where both the customer's habitual residence and the insured risk are outside the UK. Similarly, PROD 4 will not apply where products are distributed and issued exclusively to non-UK customers and, if applicable, in respect of non-UK risks. If any of these respective requirements are not met (even in part eg product is distributed to both UK and non-UK customers) ICOBS and PROD4 frameworks will continue to apply.

For London Market firms, including Lloyd's managing agents, brokers, MGAs and coverholders, this could meaningfully reduce compliance complexity across their international distribution chains. The FCA's view is that international business is generally already subject to local regulatory oversight and that, consequently, the FCA Principles (excluding the Consumer Duty) and SYSC rules provide sufficient safeguards for non-UK business. This has long been the argument put forward by the London Market and addressing duplicative conduct requirements should reduce compliance costs and make the UK a more attractive base from which to write international business without impacting UK customers.

Although the direction of travel is welcome, there are practical implications. Firms will need a process to determine a customer's habitual residence and the location of the insured risk on a contract-by-contract basis. Those with mixed UK and international books may find this tricky especially if it means reconsidering their compliance frameworks entirely. In addition, boards should consider the conduct implications of operating in jurisdictions with limited local regulation. By not requiring local regulation to exist before ICOBS is disapplied, the FCA has taken a deregulatory stance that places greater responsibility on firms to set appropriate internal standards.

Simplifying Disclosure Requirements

CP26/22 also proposes to simplify the ICOBS 4 disclosure requirements. The FCA has acknowledged that many current requirements, largely inherited from the EU's Insurance Distribution Directive (IDD), create an information overload without meaningfully improving consumer understanding. As a result, the FCA proposes to remove several mandatory disclosures, including firms' postal addresses, explanations of whether a firm is acting as insurer or intermediary, certain conflicts of interest disclosures, and information about the nature and basis of intermediary remuneration.

The removal of remuneration disclosures is particularly notable for intermediaries. Firms have long been required to provide descriptions of commission structures, yet there is little evidence that consumers use this information in practice. Consequently, the FCA intention is that outcomes-based regulation provides an opportunity to simplify disclosure rules which are not effective, therefore rather than requiring consumers to assess remuneration arrangements themselves, firms will instead be expected to demonstrate fair value under the Consumer Duty. Importantly, this is not a relaxation of conduct standards, and it remains to be seen whether in practice firms will reduce the scope of disclosures if they may still be seen as a way to protect firms.

In addition, the FCA proposes to make digital disclosure easier. The current requirement to obtain a customer's "active and informed choice" before providing information electronically would be removed, giving firms greater flexibility to adopt digital-first customer journeys which will reduce costs and are more aligned with modern communication practices. Paper documents would still need to be available on request, though firms would only be required to make that option clear and accessible. The FCA has also signalled openness to more innovative disclosure formats, including AI-enabled and visual communications, provided firms can demonstrate that these genuinely improve consumer understanding.

Firms should therefore review pre-contractual and point-of-sale documentation to identify which disclosures may no longer be required without impacting compliance with the Consumer Duty and with Principle 7 which requires clear, fair and not misleading communications (for example, an intermediary may still wish to disclose that it is not an underwriter if it is a pure broker only and not responsible for claims handling). This should help firms feedback on whether the proposals will still mean that fair value and conflict management frameworks remain robust. Those still relying on paper-heavy processes may find themselves at a competitive disadvantage if digital-first approaches become the standard.

Simplifying the Advised Sales Framework

CP26/22 also proposes simplifying the advised sales framework. Under the current rules, the "advice" category includes situations where a firm has not made a personal recommendation, creating uncertainty about when the full advice regime applies. The FCA proposes to remove this intermediate category so that the advice rules apply only where a firm makes a genuine personal recommendation.

This proposal should help bring clarity to a boundary that has long caused difficulty in practice, particularly for firms whose services currently straddle the existing categories. Although the change is straightforward in principle, firms should nonetheless review their sales processes and client communications carefully to ensure accurate classification is achievable under the simplified framework.

Converting PII Minimum Limits from Euros to Sterling

CP26/22 proposes a technical but operationally significant change to the professional indemnity insurance (PII) requirements for insurance intermediaries. Currently, minimum PII cover levels set out in MIPRU 3 and IPRU-INV 13 are denominated in euros, reflecting their origins in EU legislation. For firms buying PII in sterling, this creates an ongoing compliance burden, as they must verify at inception and renewal that their cover remains equivalent to the euro minimum as exchange rates fluctuate.

To address this, the FCA proposes replacing euro thresholds with fixed sterling amounts, calculated using a five-year average exchange rate. The proposed minimums for insurance distribution activity are £1.11 million per claim and £1.65 million in aggregate. A sterling-denominated policy meeting these thresholds at inception will thereafter remain compliant regardless of future currency movements, removing the need for ongoing equivalence calculations. Firms with policies in other currencies will still need to carry out an equivalence assessment, although against a fixed sterling benchmark rather than a fluctuating euro amount. Transitional arrangements are also proposed, allowing firms to rely on existing cover until their next renewal or extension, subject to a 12-month longstop.

While the change simplifies compliance, it nonetheless introduces a fixed benchmark and a hard implementation deadline. Firms should therefore engage with their brokers now, particularly where existing policies only narrowly exceed current euro-based minimums, to confirm that future renewal terms will meet the new thresholds.

Next steps

While CP26/22 and CP26/23 are welcomed progress, they should not be read as straightforward deregulation in all respects. In particular, as prescriptive disclosure rules fall away, firms will need to exercise greater judgement in determining how to meet their regulatory objectives and manage outcome-based regulation. Firms that treat the changes simply as an opportunity to reduce controls without reassessing underlying risks may find themselves exposed to new supervisory scrutiny.

With CP26/22 closing on 4 September 2026 and CP26/23 on 18 September 2026, firms have a limited window to engage. Perhaps most importantly, insurers, MGAs and intermediaries operating in complex distribution chains should use the consultation period to consider their roles under the Consumer Duty framework, whether as principal manufacturer, secondary manufacturer or distributor.

Only once firms are clear on their future obligations, they will then be able to simplify compliance processes and potentially reduce costs. Those that engage early, provide evidence-based feedback and begin planning now are likely to be best placed when the final rules are published.