FCA Confirms Rule Simplifications for Insurers and Intermediaries – Final Position in PS25/21

The FCA has finalised a package of rule simplifications aimed at reducing unnecessary administrative burden for insurers, intermediaries and funeral plan providers without weakening the consumer protections that sit at the heart of insurance regulation.

Published through Policy Statement PS25/21: Simplifying Insurance Regulation, the changes introduce a more proportionate, risk-based model across product governance, CPD expectations, EL reporting and commercial client classification. While all rules take immediate effect from 9 December 2025, they remain optional: firms may adopt them where they offer operational efficiency or clearer customer outcomes.

But optionality doesn’t mean lower expectations. If anything, the reforms place greater emphasis on judgement, documentation and evidence, particularly under Consumer Duty.

Below, we break down the key changes and what they mean in practice.

1. A Clearer Definition of ‘Larger Commercial Customer’

The FCA has introduced a sharper threshold to distinguish between small and large commercial clients, ensuring regulation is targeted where it is most needed.

A client will now fall under the “larger commercial customer” category if it is:

• A charity with £6.5m+ annual income
• A trust with £5m+ net asset value
• A business that is not a small business or micro-enterprise (as defined by the Financial Ombudsman Service) 

Why this matters:

Contracts with these customers are now excluded from several obligations under ICOBS and PROD for example, value assessments and certain product governance requirements.This narrows the focus of consumer protections to customers closer in profile to retail consumers and streamlines governance for firms working across the commercial space.

2. Optional Lead Manufacturer Model

For jointly manufactured products, the FCA now permits firms to adopt an optional lead manufacturer model.

Key conditions include:

• The lead must be a manufacturer (typically an insurer), not an MGA or intermediary
• A formal agreement must specify roles, responsibilities and data-sharing
• Co-manufacturers remain responsible unless delegation is clearly documented and monitored

What this enables:

For insurer/MGA partnerships particularly those operating collaboratively this model offers a centralised governance approach. However, delegating oversight does not dilute accountability. The Consumer Duty expectation remains unchanged: firms must evidence fair value, strong oversight and effective product design.  Also note: the FCA did not proceed with its proposal to assign sole ICOBS disclosure responsibilities to the lead firm existing disclosure rules remain unchanged, and firms may agree who provides documents.

3. Expanded Exemption for Bespoke Products

The FCA has widened the exemption from PROD 4 to include:

• Insurers, not just intermediaries
• Contracts that are individually designed, not marketed or distributed as standard products

Meaningful impact:

Truly bespoke policies such as individually negotiated corporate contracts can be removed from the full product governance cycle, reducing effort where the standard rules do not add value. Firms must still demonstrate that the exemption is appropriate and that customer needs, suitability and value have been properly considered.

4. Risk-Based Product Review Frequency

The mandatory 12-month minimum review cycle has been abolished.

Instead, manufacturers and distributors must:

• Set review intervals based on product risk and complexity
• Document their rationale
• Adjust review frequencies if indicators of harm emerge
• Share review plans with each other where useful 

Why this matters:

Firms with low-risk, stable product sets benefit from reduced friction, while oversight remains robust for higher-risk products. The FCA is clear: flexibility must be backed by structured monitoring, evidence and ongoing assessment.

5. Simplified Employers’ Liability Reporting

The FCA has removed several EL reporting obligations. Firms no longer need to:

• Notify the FCA when carrying out EL insurance
• Submit annual audit reports or directors’ certificates

What remains:

Record-keeping obligations  including EL register maintenance are unchanged. The simplification removes administrative burden but preserves the traceability protections critical for customers and claimants.  Firms must still obtain an annual independent audit and director’s certificate by 31 August — these no longer need to be submitted to the FCA but must be retained and made available if requested

6. Removal of the 15-Hour CPD Requirement

The previous minimum of 15 hours’ CPD for insurance distribution staff has been withdrawn.

Firms must now:

• Set CPD levels proportionate to staff roles and risks
• Ensure competence under SYSC and TC rules
• Evidence training needs analysis and ongoing development

The takeaway:

Training and Competence frameworks must become more tailored, data-driven and risk-aligned. The FCA has removed the number, not the expectation.

What Hasn’t Changed

These reforms are not a relaxation of regulatory standards. Several core expectations continue unchanged:

• ICOBS disclosure rules remain the same
• Consumer Duty continues to frame all governance, oversight and value considerations
• No changes apply to insurance-based investment products (IBIPs)

Flexibility does not remove the need for proportionality, transparency and documented reasoning.

What Firms Should Do Next

To adopt these reforms effectively and safely  firms should:

• Review and update product governance frameworks
• Reclassify commercial clients under the new thresholds
• Decide whether to adopt the lead manufacturer model and document clear accountabilities
• Update T&C and CPD frameworks to reflect risk-based competence models
• Redesign product review cycles, ensuring rationale and monitoring processes are robust
• Update EL reporting processes in line with the simplified requirements

Each change offers opportunity but also requires alignment across governance, operations, conduct risk and documentation.

How Padda Consulting Can Help

Padda Consulting supports insurers, MGAs and intermediaries to interpret and implement the FCA’s new model with clarity and confidence.

We can help you:

• Apply the new commercial customer definition and align ICOBS practices
• Design and embed lead manufacturer arrangements
• Identify and document bespoke product exemptions
• Restructure product review cycles in line with risk
• Strengthen Training & Competence frameworks under a flexible CPD model
• Streamline EL audit and register processes

Our consultants ensure firms adopt the available flexibilities without compromising governance, audit readiness or consumer outcomes.

If you’d like support navigating PS25/21 or assessing how these changes impact your operating model, we’re here to help.