The FCA published two key documents on 25th March 2025. The first is the FCA Strategy for 2025-2030 which outlines the regulator’s plan to continue reforming regulation, with a particular focus on how it authorises and supervises firms. The document outlines several welcome developments, including:
- A more risk-focussed approach to supervision would see those firms “demonstrably seeking to do the right thing” seeing less supervisory attention, even if they’re in the large-firm supervisory programme.
- Giving more firms direct contact points at the FCA, which will hopefully reduce reliance on the firm contact centre.
- Regular publication of market reports and sharing of supervisory insights, giving firms a better understanding of regulator expectations and focus areas.
- A more proportionate approach to data collection, focussing on data that is actively used by the FCA. This will likely reduce the volume of periodic returns that firms submit. The FCA also plans to introduce a ‘My FCA’ single entry point through which firms will be able to submit regulatory returns and manage regulatory interactions.
- Simplifying the authorisation process to make it faster and easier to follow whilst giving the FCA the ability to act quickly and assertively in cases where harm is greatest.
The document notes the FCA’s aim to have the Consumer Duty underpin how firms treat customers, with the hope that it will increase confidence amongst clients and result in a greater uptake of financial products.
The document outlines a focus on technology, noting a plan for the FCA to increase its use of technology to underpin efficiency and risk focus. It highlights that the FCA will support technological development throughout the marketplace and will support the continued development of Open Banking and Variable Recurring Payments, as well as technology-driven efforts to reduce financial crime.
The second publication is Feedback Statement 25/2, outlining the FCA’s plans to simplify rules and guidance. The plans aim to reduce the regulatory burden and cost for firms whilst encouraging innovation and the use of technology as part of ensuring delivery of good customer outcomes. We can expect the FCA to take swift action, with accelerated consultation processes for some aspects of the planned change.
What actions can we expect from the FCA?
Alongside the work already underway including the Advice Guidance Boundary Review, reforming the Consumer Credit Act, review of SM&CR, and transforming its data collection approach the FCA has outlined other actions it plans to take.
Client Assets Firms
Firms subject to the Client Asset Sourcebook (CASS) have long hoped that the rules would be updated and it appears that the hope maybe finally realised, to some extent at least. The FCA plans to consult on changes to some parts of the CASS rules, which could help remediate long-standing breaches that have frustrated firms.
For example, the FCA plans to consult on amending record-keeping requirements for certain due diligence relationships. This could mean that for those firms breached by auditors each year for not having records of third-party due diligence pre-dating the requirement to carry out that due diligence, the frustration may finally be over. Changes to the reconciliation rules will also be considered, which could remove repeated breaches for those firms unable to obtain monthly statements, for example, when assets are in liquidation. The consultation will also include adding flexibility to the rules on the removal of interest owed to firms, again potentially alleviating repeated breaches outside of the firms’ control. Depending on the outcome of the consultation, we could see a reduction in the ‘noise’ we see in audit reports caused by unavoidable or minor administrative breaches. This will make it easier for the FCA and firms to focus on breaches that bring genuine risk to the client asset pool.
Banking and Retail Lending
Mortgage rule review
- Responsible lending and advice rules are already being reviewed with the aim of simplifying, updating or removing requirements now covered by the Duty. We can expect a Consultation Paper in May 2025. We expect the consultation to focus on supporting innovation and driving better customer outcomes. It will do this by leveraging the Duty’s outcomes-focused approach to increase flexibility for firms tailoring customer-facing communications.
- We can also expect a Discussion Paper in June 2025, covering topics including risk appetite and affordability testing. In the past, we’ve seen the FCA regularly challenging firms on the level of scrutiny applied by advisors to expenditure declarations made by customers through advised sales processes. We also see that firms do not always outline their approach to assessing and verifying income as part of mortgage advice cases. So it will be interesting to see what the discussion will bring in respect of alternative affordability testing and product innovation. That said, we would welcome innovation that is designed to drive process improvement and monitoring to ensure that lending practices remain affordable with consumers protected from harm.
Financial promotions for Consumer Credit & disclosures for retail banking
- The FCA will review the Consumer Credit financial promotions rules with the aim of removing unnecessary prescriptions and outdated requirements. It will also consider how to remove prescriptive disclosure requirements for retail banks to enable firms to better tailor communications for customers and improve alignment with Consumer Duty.
Insurance
In summer 2025, the FCA will be consulting on plans for changes to rules that are expected to give greater flexibility with respect to product value reviews and reviewing product-specific requirements for packaged bank accounts and GAP insurance. The consultation will also include consideration of the removal of minimum training requirements for insurance employees. The FCA will also review the reporting requirements introduced under the general insurance pricing practices intervention.
General changes
Product governance and fair value
- The FCA will make efforts to give clarity on these areas of the rules, giving consideration to how they interact with each other and other parts of the Handbook.
Distribution chains
- Firms will be consulted to understand how the FCA clarify Consumer Duty expectations on firms that form part of a distribution chain, particularly those firms without direct retail customer contact.
Guidance to firms
- The FCA plans to pilot small firms guides this year, engaging relevant stakeholders in doing so. If they find that it’s possible to provide useful guidance to smaller firms while avoiding confusing messaging or a one-size-fits-all impression, we can expect the piloted guidance to be rolled out more widely.
- The FCA also plans to retire outdated guidance, including guidance for the mortgage and consumer finance sectors as well as guidance on the Treating Customers Fairly initiative.
Dear CEO Letter Reviews
- The FCA has also stated its appetite to reduce the volume of FCA communications firms are expected to track and will review all pre-April 2022 Dear CEO Letters and aim to withdraw them, unless exceptions are identified. We are seeing the FCA actively referring back to Dear CEO letters published in 2020, particularly in the context of CASS supervision work, so it seems likely that not all letters will be withdrawn.
Training and competence requirements
- The FCA hasn’t outlined what they expect the result of a proposed wider review of the T&C sourcebook will be, but they have referred to the review happening in the context of relevant requirements included in other sourcebooks. This suggests that we can anticipate some streamlining and possibly efforts to ensure that all relevant requirements are easily found in one place.
Reviewing international application of rules
- Starting with the insurance sector, the FCA will consult on whether firms carrying out business under the rules of an overseas jurisdiction will also need to apply UK requirements to overseas business.
Consistency in Handbook definitions
- Reviewing definitions of retail customer and small and medium-sized enterprises to ensure consistency across sectors. This is likely to lead to a change in the definitions used by the insurance sector.
How Square 4 can help
At Square 4, we can help you keep on top of regulatory change as well as helping you prepare to implement any changes relevant to you. Get in touch if you would like to discuss what we’re seeing from the FCA or if you’d value support. We have expertise and support firms across all areas of the regulatory agenda, including: Client Assets Compliance, Consumer Duty, design and implementation of Outcomes Monitoring, Vulnerable Customers, Financial Promotions, Collections & Recoveries, Borrowers in financial difficulty (BiFd), Complaints, Governance, Affordability/Creditworthiness and Sales/Suitability.
