FCA outlines its priorities and areas in which it plans to reduce the regulatory burden for firms.
By Rob Moulton, Nicola Higgs, Becky Critchley, and Charlotte Collins
On 25 March 2025, the FCA published its five-year strategy (Strategy), alongside the outcome of its review of retail conduct rules in light of the Consumer Duty. Together, these publications give a clear flavour of the regulator’s direction of travel at what has been a challenging and uncertain time. Both documents evidence the difficult balancing act the FCA must perform to ensure it is adhering to the government’s growth agenda, reducing the regulatory burden and championing innovation, whilst maintaining robust standards and sufficiently protecting consumers from harm.
FCA’s Strategy
The Strategy sets out the FCA’s priorities for the next five years, enabling the regulator to take a relatively long-term view of its goals. However, these are high-level visions only, and the Strategy does not go into any detail about specific policy measures, nor does it make new substantive policy announcements. As Nikhil Rathi stated in a recent speech, the FCA is “aiming for fewer large-scale changes” in this Strategy (for further information, see this Latham blog post). Therefore, the document primarily covers how the FCA will go about its work rather than exactly what it will do, and so its impact is fairly contained.
The vision underpinning the Strategy is one of “deepened trust and rebalanced risk” — no doubt aiming to appease critics on both sides, since the FCA has simultaneously been accused of being excessively risk-averse whilst also failing to protect consumers. The opening remarks state: “Too often the focus has been on the risks of a decision taken rather than the lost opportunity of taking none. We want to change that”. However, the regulator asserts that there should be an open debate about different risks, reiterating once again that it will need the government’s backing to shift its risk appetite.
The Strategy is based around four key priorities:
Be a smarter regulator. The FCA will reform its approach to supervision, taking a more flexible approach and deploying less intense supervision “for those demonstrably seeking to do the right thing”. It will streamline how it sets regulatory priorities, aiming to publish a “small number” of market reports once a year. It will also share supervisory insights from its work to help more firms learn from what the regulator is seeing. The FCA aims to provide more regulated firms with direct contact points within the regulator; currently, most firms do not have a named supervisor and must deal with the FCA contact centre. The FCA also expects this streamlined approach to flow through into enforcement, taking on a smaller portfolio of cases and achieving outcomes faster. Further, the FCA is seeking to digitise authorisation processes so that they enable faster and smoother navigation for applicants.
Support growth. The FCA intends to take an increasingly tech-positive approach, and will seek to rely on existing regulation rather than imposing prescriptive new rules on innovative businesses or use of technology. The regulator will also focus on the UK’s competitiveness, keeping this in mind as it reforms rules and the redress framework.
Help consumers navigate their financial lives. The FCA will focus on building trust in financial products, and ensuring its rules allow for product innovation and widened access. Principles from the Consumer Duty will be crucial to this, as well as ongoing work on the Advice Guidance Boundary Review.
Fight financial crime. The FCA will continue to focus on fraud and market abuse in particular, initiated within and outside of the regulated community. In particular, it will support firms with utilising new technologies to enhance their financial crime systems and controls.
While much of this is predictable based on the FCA’s recent rhetoric and the government’s statements about its aims for UK regulation, the change in approach to supervision is particularly interesting. It seems the FCA might dedicate more resources to provide a greater number of firms with supervisory contact, whilst reducing the depth of supervision, at least for lower-risk firms.
The FCA’s international outlook is also noteworthy. The regulator openly acknowledges that global cooperation and openness may be more challenging in the current political environment, and that it might seek to work with “a smaller group of like-minded jurisdictions” to pursue its goals. The FCA also highlights that, if global standards are not implemented across jurisdictions (perhaps thinking of Basel 3.1), it will need strong bilateral relationships with counterparts to help navigate such situations. The regulator announces that it plans to establish a permanent presence in the US and Asia-Pacific for the first time, to support regulator relationships and to provide local assistance to firms wanting to learn about the UK regulatory regime. Although the FCA has always had a strong voice in international circles, its choice to now focus on major jurisdictions outside the EU is interesting.
Consumer Duty Rule Review
The second document is the outcome of the FCA’s review of retail conduct rules in light of the Consumer Duty. Following a Call for Input issued in July 2024, the FCA has published immediate actions it plans to take in order to streamline certain retail rules, as well as further plans for longer-term work. The FCA notes that, since most feedback opposed wholesale rule changes, it is not pursuing a widespread overhaul of its rules at this stage, demonstrating that even where the regulator is willing to make changes, industry may not have the appetite for the short-term costs associated with the potential longer-term gains. Consequently, the immediate actions represent targeted steps to amend or simplify discrete areas of regulation.
The FCA also highlights that respondents were not wholly in favour of moving away from detailed rules. It reports that some cautioned that the loss of regulatory certainty could actually make industry more risk-averse, reduce consumer protection, and increase the need for more detailed guidance.
Therefore, while the FCA is moving forward with various changes that will be welcomed by firms and help it achieve HM Treasury’s directive to reduce the regulatory burden, this review may not go as far as its initial ambitions might have suggested.
The FCA’s planned actions fall into four areas:
Reviewing the foundations. This will involve the FCA addressing how it regulates and reviewing the scope of its rules. In particular, the FCA will conduct a mortgage rule review, with a Consultation Paper looking at ways to provide consumers with greater flexibility in May 2025, followed by a Discussion Paper on further topics including risk appetite and affordability testing in June. The FCA is also exploring whether UK firms should be required to apply UK rules when serving customers outside of the UK. It will start by reviewing this topic within the insurance sector, launching a discussion by summer 2025. If it decides to make changes in this area, it would be a significant shift in the regulatory approach. Finally, the FCA will review certain core Handbook definitions such as “retail customer” and “SME”, which are complex and vary across the Handbook, with a view to introducing greater consistency.
The FCA also emphasises that a number of existing workstreams support its aims in this area. These include reviews of the Consumer Credit Act and SMCR, the Advice Guidance Boundary Review, work on modernising the FOS, and the wider exercise of repealing and restating assimilated law.
Future-proofing disclosure. The FCA wants to allow more flexibility for firms to tailor customer-facing communications in a way that promotes consumer understanding and allows for more modern customer journeys. It intends to rely further on the outcomes-focused approach of the Consumer Duty to enable greater flexibility. Planned work includes considering mortgage disclosure rules as part of its mortgage rule review, to feature in the Discussion Paper in June 2025 (referenced above). The FCA will also review the financial promotion rules for consumer credit. It plans to consult on removing unnecessary prescription, updating outdated requirements, and improving alignment with the Consumer Duty within the next year, as well as discussing whether to review rules on the disclosure of Annual Percentage Rates.
Further, the FCA plans to increase flexibility in disclosure requirements for the retail banking sector, allowing firms to tailor communications for customers. The FCA cites work on the new Consumer Composite Investments regime as an existing measure supporting this area.
Reducing the administrative burden. The FCA wants to give firms more flexibility in how they apply regulatory requirements, so that the regime becomes more outcomes-focused. The FCA plans to launch a consultation on proposals to simplify rules for insurance firms by summer 2025, along with discussion questions on potential further changes around some of the more detailed and prescriptive product-specific rules and the application of conduct rules outside the UK (as mentioned above). Further, the FCA intends to consult on changes to the requirement for asset managers to report annually on their value assessments later this year. Finally, the FCA will consult on updating certain CASS-related requirements, including amending record-keeping requirements, broadening reconciliation rules, and adding flexibility to rules on removal of interest owed.
Potential future work includes reviewing training and competence requirements, reviewing reporting requirements linked to insurance pricing rules, clarifying how product governance rules interact with fair value rules under the Consumer Duty, and clarifying how the Duty should apply to firms in retail distribution chains, particularly for firms that do not interact directly with retail customers.
Streamlining requirements. This will include targeted work to remove or review outdated requirements, or areas of unnecessary complexity. The FCA plans to start piloting the use of small-firm guides this year, with a view to potentially rolling these out more broadly if they can help smaller businesses to better navigate its rules. The FCA intends to review and retire outdated guidance later in 2025, including guidance for mortgage and consumer finance firms, and guidance on Treating Customers Fairly.
Importantly, the FCA plans to review and clarify the status of historic sectoral communications, including Dear CEO letters, portfolio letters, multi-firm reviews, thematic reviews, and newsletters. To start with, it will review all Dear CEO letters and portfolio letters pre-dating its 2022-25 Strategy and seek to withdraw them (with some exceptions). However, it plans to keep these documents publicly available. It will also consider how it can ensure that outdated materials are regularly withdrawn going forward.
Later in 2025, the FCA intends to address confusing, outdated, or potentially conflicting Handbook requirements. This will include addressing outdated references to Principles 6 and 7, along with the Treating Customers Fairly initiative, and streamlining and simplifying investment and borrowing powers rules in Chapter 5 of the Collective Investment Schemes sourcebook.
Finally, the FCA will explore reviewing the Senior Management Arrangements, Systems and Controls (SYSC) sourcebook, which respondents highlighted as being particularly confusing. The FCA notes that the work in this area sits alongside plans to make the Handbook more user-friendly and machine-readable.
The FCA will use an accelerated consultation process to progress the measures for immediate action. In areas of proposed action but which lack consensus, it will engage further with industry to determine next steps. It intends to set out more detail on its future work in September 2025, following an in-person summit in the summer.