The Financial Conduct Authority has today launched a review on 'streamlining' regulatory red tape post the Consumer Duty, amid signs many advice firms have cut back on the number and type of clients they serve and struggled to meet all the obligations.

The FCA said its regulatory review, “seeks to reduce burdens on firms and support growth."

Some regulatory requirements could be modified or dropped entirely.

The review, which calls for input from the industry, comes on the eve of the one year anniversary of the Consumer Duty being implemented on 31 July last year.

The Duty requires firms to step up the quality of their dealings with clients to ensure fairness at all stages of the ‘customer journey.’ However, recent studies have suggested that many advice firms have altered how they deal with clients by cutting back on customers with smaller amounts invested and being more cautious about taking on new clients.

A recent study by Royal London revealed that more than two in five advisers (43%) have changed their client servicing approach as a direct result of the FCA's Consumer Duty introduced.

Royal London’s survey also revealed that the same percentage have changed their approach when dealing with vulnerable customers. Other key changes in services in the past year include 27% of advisers saying they have increased the frequency of client feedback requests with 15% reducing the number of clients on their books. Some 13% say they have also changed investment approach.

The FCA will not dismantle its Consumer Duty requirements but says that its rules governing regulated firms could be, “streamlined to reduce burdens on businesses.”

The regulator is calling on the industry to identify rules which could be “removed or simplified” if they overlap with the Duty. 

The watchdog says that reducing the complexity of the FCA’s rulebook could lower costs for firms, encourage innovation and help support the risk appetite needed to support growth, a key plank of Labour's economic policy. 

In a statement announcing the review, the FCA said today: “We want to see where we can simplify our retail conduct rules and guidance. We particularly want to address potential areas of complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit. We also want to include appropriate flexibility in our rules to be responsive to future changes and innovation.

“While we are primarily focused on our retail conduct rules and guidance, we also invite views on our wider rules and guidance."

The FCA wants to know:

• Which detailed rules or guidance could be simplified to rely on high-level rules, or have interactions with other rules which could be clarified

• How any steps to simplify its rules and guidance affect its statutory objectives

• The appropriate balance between high-level and more detailed rules

• The potential benefits and costs from simplifying its rules

Nikhil Rathi, FCA chief executive, said: “We are firmly committed to playing our part in supporting economic growth. The Consumer Duty marked a major shift for firms and consumers by setting higher and clearer standards of consumer protection and requiring firms to put their customers’ needs first. 

“We now want to seize the opportunity of the Duty and the move to a clear, outcomes-based approach to streamline our rulebook, lowering costs for businesses and supporting the competitiveness and growth of the economy.” 

Alongside the rule review announced today, the FCA is considering simplifying rules in the commercial insurance sector, a market worth £15.5bn in the UK. The FCA is inviting views on whether changing how customers are categorised could significantly reduce the time needed to take on new customers, or renew their contracts, and allow products to be custom made. This would reduce regulatory costs and may increase the competitiveness of the commercial insurance market, it said.

The launch of both reviews comes on the day that the regulator has published its first report on its secondary objective to support UK competitiveness and economic growth over the medium to long-term. As part of this the FCA has improved its new firm authorisation process with 98% of cases now assessed within statutory deadlines, up from 78.9% in Q1 of 2022/23. 

Key FCA documents:

• Call for Input for the Review of FCA retail conduct requirements following introduction of the Consumer Duty. 

• The Secondary International Competitiveness and Growth Objective (SICGO) report (PDF) 

• Insurance competitiveness discussion paper  

• SIGCO Metrics

• Information about the independent Cost Benefit Analysis Panel and the FCA’s framework for analysing the costs and benefits of its policies.