FCA Consultation Paper CP26/22: Simplifying the Insurance Rules

Overview

On 29 June 2026, the FCA published its Consultation Paper CP26/22 on ‘Simplifying the Insurance Rules’. This consultation builds on the first phase of the FCA’s plans to streamline its rules and reduce complexity in the insurance conduct regime, and follows its final rules and options for future changes published in PS25/21 in December 2025.

Given that the proposals are deregulatory in nature (in that they remove or simplify rules, rather than introduce new rules), firms will not be required to change their approach where it already meets the standards under the existing rules.

The consultation is open until 4 September 2026. The rule changes will come into force shortly after they are made, so that firms can benefit from the added flexibilities as soon as possible.

Key Proposals

The consultation proposes five primary areas of reform, which we summarise below.

1. Increasing flexibility in means of disclosure

The FCA proposes to modernise the rules governing how disclosures are communicated. The current rules, which focus on paper delivery and require an “active and informed choice” before firms can communicate electronically, do not reflect how consumers buy and engage with insurance today, which is increasingly digital. The FCA wants to align the insurance disclosure rules more closely with its approach in other consumer finance sectors, such as retail banking, which adopts a more outcomes-focused approach to the format of disclosure. In summary, the FCA has proposed the following changes:

• Removing the default requirement to provide disclosures on paper. Firms would instead be free to determine the appropriate format for disclosures based on the context of their business and the needs of their customers.
• Firms must continue to provide paper disclosures free of charge where a customer requests them, and the option to request paper must be clear and easily accessible (for example, via a tick box or link on a website).
• Removing the “active and informed choice” requirement for electronic communications.
• Removing the option for website disclosure that does not constitute a durable medium.
• Simplifying the language requirement: disclosures must be provided in English or any other language agreed by the parties.

2. Simplifying advised sales rules

The FCA proposes to simplify the framework for insurance advice by removing the existing distinction between a “personal recommendation” and other “advice” that does not amount to a personal recommendation derived from the EU Insurance Distribution Directive (“IDD”). This will create a clear boundary between advised and non-advised sales.

The FCA recognises that the current rules create multiple overlapping categories of advised sale with slightly different requirements, adding complexity and regulatory uncertainty without clearly improving customer outcomes. 

In summary, the FCA proposes to:

• Establish two clear categories: advised sales (involving a personal recommendation as defined in Article 53 of the Regulated Activities Order) and non-advised sales.
• Remove the requirement to disclose whether the firm is giving a personal recommendation on the basis of a “fair and personal analysis of the market”.
• Remove the guidance on using panels to determine whether a fair analysis of the market has been undertaken.

Firms must still inform customers whether they are providing a personal recommendation or simply providing information. Other requirements for non-advised sales (which do not involve a personal recommendation) will remain unchanged.

3. Removing unnecessary disclosure requirements

The FCA proposes to remove a number of disclosure requirements mainly originating from the IDD that it considers to be duplicative, outdated or of limited practical value to customers, such that they do not materially improve customer understanding or support effective decision making. This includes:

• Removing the requirement to disclose the firm’s postal address.
• Removing the requirement to disclose whether the firm is an insurance undertaking or intermediary.
• Removing multiple disclosures about potential conflicts of interest, including those relating to 10% shareholdings, whether the firm acts for the customer or the insurer, and exclusive placement obligations.
• Removing remuneration disclosures, including requirements to disclose the nature and basis of intermediary remuneration and employee remuneration.

Please note that fee disclosure requirements are retained. Commission disclosure on request for commercial customers is also retained. However, the FCA has proposed to broaden the guidance on general law fiduciary obligations so that it applies to all customers, not just commercial clients.

4. Narrowing the territorial scope of ICOBS and PROD 4

Another key proposal relates to the narrowing of the territorial application of the Insurance Conduct of Business sourcebook (ICOBS) and the Product Intervention and Product Governance sourcebook (PROD 4) for non-UK business. 

Currently, elements of the insurance conduct rules in ICOBS and PROD 4 can apply to insurance business carried on from the UK, even where the customer and the insured risk are located outside the UK. The FCA recognises that applying these rules alongside local regulatory requirements in overseas jurisdictions, even where there is little or no UK connection, can create complexity and uncertainty for firms operating internationally, which may act as a barrier to entry.

Under the proposed changes:

• ICOBS – which regulates firms’ conduct towards customers entering individual insurance contracts - would be disapplied where both the customer’s habitual residence and the state of the risk (if different, for example, for products such as property insurance) are outside the UK. Where either is in the UK, ICOBS would continue to apply in full. 
• PROD 4 – which regulates the design, distribution and monitoring of insurance products generally - would be disapplied where the product is available only for distribution to customers outside the UK, and all policyholders are resident outside the UK and, if applicable, risks are located outside the UK.
• High-level requirements - including the Principles for Businesses (other than the Consumer Duty) and SYSC rules - will continue to apply to activities carried on in the UK regardless of the location of the customer.

This approach means that the FCA will not apply a local regulation backstop, whereby the disapplication of UK conduct requirements would apply only where the product and distribution activities are subject to local regulation. While this approach would provide additional consumer protection, the FCA concluded that it would also reduce the clarity and proportionality of the proposals. It also recognises that the majority of international insurance business conducted from the UK involves customers in jurisdictions such as the US and Canada, where insurance regulation is often more prescriptive than the UK’s own requirements.

We note that, alongside this consultation, the FCA is separately consulting on changes to the scope of the Consumer Duty, in CP26/23, including proposed changes to the scope of the Consumer Duty for non-UK customers.

Importantly, these changes would apply on a forward-looking basis only. Existing contracts will continue to be subject to the rules that applied at the time they were entered into.

5. Converting PII minimum limits from euros to sterling

The FCA proposes to convert the euro-denominated minimum professional indemnity insurance (PII) levels for insurance intermediaries into a pound sterling amount. The FCA’s conversion uses a five-year average of the daily GBP/EUR exchange rate, to produce a central rate, with amounts rounded to the nearest £10,000.

The proposed sterling amounts are:

• Insurance distribution activity - for a single claim: £1,110,000 (from €1,300,380); and in aggregate: £1,650,000 (from €1,924,560).
• Home finance credit intermediation – for a single claim: £390,000 (from €460,000); and in aggregate: £640,000 (from €750,000).

A transitional provision would allow firms to rely on their existing PII cover until the next renewal or extension, subject to a twelve-month longstop from the date the instrument comes into force. 

Commentary

The proposed changes are welcome, removing or simplifying a range of prescriptive existing requirements that have been a known source of compliance burden for both insurers and intermediaries. They will however result in a divergence of approach in the EU and UK insurance sector.

If you would like to discuss how these developments may affect your business, please contact one of the authors or your usual CMS contact. 

Article co-authored by Rowan Platt