The Gordian knot of growth

Introduction

Thank you, Hannah, for the invitation. I must confess to a degree of trepidation: I read your ABI Dinner speech, where you called for Alexander the Great’s sword to be raised over regulators, and for bold strokes to be taken.

So I had to wonder for a moment, what fate may lay before me this morning, surrounded by 40 of your chief executive cavalry – a friendly breakfast or a last meal?

You were, in fact, making a very important point about, in your words, the ‘Gordian knot of regulation’.

I’d go further and talk about the Gordian knot of our growth challenge. And I agree with you, Hannah: tackling this urgent problem requires bold strokes – from all of us.

Taking bold action

At the FCA, we are willing to be bold. Last year, we made far-reaching changes to our listing rules. More fundamental change is coming on prospectuses. The Advice Guidance Boundary Review[1] aims to be transformative. But we need to be bold not just in what we do, but how we do it.

Following my letter to the Prime Minister[2] last month, we moved immediately to remove the expectation for a Consumer Duty Board champion[3]. From this morning, Boards can decide for themselves whether or not to have one.

And you may be surprised in the coming weeks at the pace we will move on the 50 or so growth proposals we made to the Prime Minister. On mortgage affordability, digital payments, removing redundant data returns, supporting international promotion of UK financial services, opening up to more innovative firms and cutting barriers between regulators.

And as we work with the Government on their financial and professional services strategy, one area where we have asked for bold thinking is around articulation of the Government’s risk appetite – particularly in relation to consumer harm.

We would value metrics against which we can be held to account. And in turn, which can help give you the predictability and certainty you need. We hope you will engage in this debate too.

Building trust and ensuring stability

But I know our ability to take these bold steps rests on a different, more trusting, approach between regulator and regulated. When I joined the FCA 4.5 years ago, the relationship between the FCA and the insurance industry was in a tough spot. 

We were not just in the midst of finalising a major but contentious intervention on general insurance pricing. We were also in court – ultimately the Supreme Court – on Covid business interruption insurance claims. Since then, I hope you will agree that we have built up that relationship, through pragmatic conversations about what’s working and what isn’t. And I am glad that following last week’s Court of Appeal judgement on treatment of furlough in business interruption claims, that stream of litigation is drawing to a close. 

One thing we all agree on is that major claims and redress events shake confidence – of consumers, investors, firms and those to whom we are accountable in Parliament. We are, of course, waiting for the Supreme Court’s decision on motor finance cases, but subject to their timetable, we hope we can provide clarity on any redress mechanism by the end of this year.

And for ongoing advice, where I know there had been concerns that this could become another major redress issue, our findings set out this week did not identify a systemic redress situation. So while we cannot rule out other major redress events in the event that systemic breaches of the law emerge, we are not currently anticipating any further such mass redress events.     

And our focus is now turning to our joint Call for Input[4] (CfI) with the Financial Ombudsman Service (FOS) on how complaints and redress mechanisms work. Reviewing the framework to ensure even tighter alignment, and clearer early warnings when significant issues are emerging. Boosting the predictability that firms need to make decisions.

Reducing burdens where we can

Alongside our first report on our secondary international competitiveness and growth objective, we published two papers of specific interest to the insurance market. The first on reforms to regulation of wholesale insurance markets, the second a Call for Input on how we could simplify our Handbook in light of the Consumer Duty. Thank you for the huge amount of engagement from you on this work. Let me say a few words about where we are on both.

On wholesale insurance, we heard concerns from commercial practitioners questioning the proportionality of applying some specific consumer protection rules to them. Our Discussion Paper that followed set out options to align conduct rules with FOS eligibility to ease the burden on firms insuring large SMEs, as well as considering flexibilities in product governance and bespoke contract exclusions. We’ve had positive feedback from industry trade bodies on those and will consult on proposals soon.

Our proposals will go further than the Discussion Paper. We will also include ideas raised in response to the Consumer Duty CfI, such as the frequency of assessing fair value and removing prescription around continuous professional development. And talking about the CfI, we had 170 responses from firms of all sectors and sizes as well as consumer groups.  

We are working through this rich feedback. For the insurance sector specifically, we are looking hard at reporting requirements – disclosures, training and competency rules, review cycles, product-specific rules, and the scope of international rules. And where we can simplify, we will.

We have already taken on board concerns about the volume and complexity of firm-facing publications. We are launching our new single sign in portal ‘My FCA’ next month and improving accessibility and efficiency of our Handbook with a machine-readable version. And we are looking to more quickly identify redundant data returns, consulting next month on the first batch that can be ‘turned off’.

We also heard concerns around the pace of regulatory change, and are aiming for fewer large-scale changes in our next 5-year strategy. That said, I think the diversity of responses to the CfI – some think we are going too fast, some not fast enough – shows there is a debate to be had around the speed of change. And perhaps also where there is not agreement on the pace of change, whether we should still move quickly but with long transition periods. We are certainly willing to be creative and open to ideas on how we could be flexible.

We want to streamline our work. End duplication. So, for example, instead of taking forward new rules specifically on property funds, we’ll focus on implementing International Organisation of Securities Commissions (IOSCO) and Financial Stability Board (FSB) guidelines on managing liquidity risk.

Commitment to consumer resilience

But I want to be clear: being serious about growth does not mean a diminishing focus on our primary objectives. The ability of consumers to access the right products for them – good quality, fair-value products – when they need to is central to our purpose. It will be an important part of our next 5-year strategy.

Insurance is a vital safety net for individuals and businesses alike, helping people manage risk and ride out challenges. And I’m especially grateful to Hannah for her work as chair of the Financial Inclusion Taskforce, and to the firms working with us and Treasury, for helping to make sure that safety net is there for the most vulnerable. Unsurprisingly, insurance is the subject of a significant number of campaigns focused on the treatment and value people received. We are – and will continue to be – data-led. Scrupulous in assessing where we see significant harm, and when we don’t.

Since we brought in the Consumer Duty, we’ve seen real improvements in product oversight and governance. But there’s still work to do. We’ve already intervened on Guaranteed Asset Protection (GAP) insurance and vehicle valuations in motor insurance.

And we continue to focus on motor insurance pricing as part of the Government’s broader motor insurance taskforce. The latest Association of British Insurers (ABI) data is encouraging – showing premiums have dropped for two consecutive quarters – but we won’t be taking our eye off the ball.

We have announced a market study into premium finance, where we have concerns that charges may not be providing fair value for consumers – which is particularly worrying as the proportion of consumers using premium finance is increasing. And a study into pure protection, amid concerns that the design of commission arrangements may not be allowing firms to deliver good outcomes to policyholders.

Inevitably, those issues receive the headlines. The good practice we applaud less so. For example, the work of some firms to accept electronic notification of death, speeding up claims and making it easier for people finding their way, when vulnerable, through the complex and upsetting process of resolving a loved one’s affairs.

Supporting innovation

And we are keen to support firms to innovate in ways that drive competition, improve efficiency and strengthen the UK as a leading centre for insurance. Take the possibilities of AI – portfolio optimisation, claims automation, fraud detection, even modelling natural disasters. The ABI's AI working group released a helpful guide on good use cases. And some of your firms took part in our AI Sprint[5], which generated more ideas.

And having supported nearly 1,000 firms through our innovation services over the past decade, the FCA is ready to support the safe experimentation on AI through our Sandboxes. I’d encourage you to reach out to us. 

Conclusion

So we are focused on maintaining strong consumer protections, on cutting unnecessary regulatory burdens, on supporting the growth mission. And we are moving at increasing pace. I've mentioned our new 5-year strategy, which we'll be saying more about next month.

Trust in the FCA and the financial services sector underpins the key themes running through that strategy: supporting consumers, supporting economic growth, tackling financial crime, and driving our own effectiveness. I’m confident we can deepen trust through pragmatic conversations like the one we will have today.

And as well as drawing inspiration from Alexander the Great’s sword to cut through the Gordian growth knot, I hope that we can also take a leaf from his playbook in assembling expertise. He didn’t just rely on warriors; he surrounded himself with engineers, architects, scientists and historians. Drawing on a broad range of expertise in shaping cities, systems and democracies.

So, as we embark on our next 5-year strategy, I hope we can draw in the widest possible input and insight to enable a thriving sector that benefits both consumers and the economy.