thoughts & threads

In December 2025, the Financial Conduct Authority published Policy Statement PS25/21, finalising reforms designed to simplify insurance regulation. The statement follows feedback from consultation CP25/12 and reflects the FCA’s ongoing objective to reduce unnecessary complexity while maintaining robust consumer protection. For senior leaders in insurance, risk and compliance, these changes signal an important shift in regulatory approach.

Focus on Outcomes over Prescriptive Rules

At the centre of PS25/21 is the Consumer Duty, which prioritises customer outcomes. The FCA recognises that rigid rules often add limited value and can increase operational burden. By focusing on outcomes, firms can operate with more flexibility while ensuring customers are treated fairly.

This is not a reduction in regulatory expectations. Firms are still expected to maintain strong governance, provide reliable management information, and demonstrate clear accountability for decisions. The reforms are intended to free up resources so firms can innovate, improve processes, and focus effort where there is the highest risk of customer harm.

Key Changes for Firms

SME Watershed
PS25/21 clarifies the distinction between smaller and larger commercial customers. Protections remain strong for smaller businesses while larger and more sophisticated clients are subject to lighter touch rules. This approach aligns regulatory effort with customer needs and risk profiles.

Product Governance Flexibility
Firms now have greater discretion under PROD 4. They may appoint a single lead firm responsible for product governance outcomes across a range of products, particularly relevant for managing general agents and firms operating through networks. This simplifies oversight without reducing accountability.

Review Frequency Changes
The mandatory 12-month product review requirement has been removed. Firms must determine review frequency based on the level of risk and potential customer harm and maintain records of the rationale for their decisions. This encourages a proportionate approach to oversight.

Streamlined Reporting
Obligations for annual notifications, including Employers’ Liability reporting, have been removed. Firms must still report material breaches but day-to-day reporting requirements have been reduced, lowering administrative burden.

Training and Competence
The fixed minimum continuing professional development requirement of 15 hours per year has been removed. Firms have discretion to ensure staff competence is appropriate for their roles, supporting targeted development rather than box-ticking.

Implications for Senior Leaders

PS25/21 provides an opportunity to review operating models, governance frameworks and resource allocation. Senior leaders should consider:

• How governance processes can be simplified without compromising accountability
• Where management information can be refined to focus on outcomes that matter to customers
• How the Consumer Duty is embedded in product design, pricing and customer communications

By adopting the flexibility offered in PS25/21, firms can allocate resources more efficiently, reduce operational friction and improve customer outcomes, aligning business strategy with regulatory expectations.

Looking Ahead

While PS25/21 delivers immediate changes, the FCA will continue to consult on future refinements, including updates to Consumer Duty rules for non-UK consumers and possible adjustments to the SME watershed. Firms that proactively adapt to these reforms will be well placed to navigate the evolving regulatory landscape and capitalise on operational efficiencies.

Conclusion

Policy Statement PS25/21 represents a careful evolution in insurance regulation, combining simplification, flexibility and a stronger focus on customer outcomes. For senior managers, compliance is no longer about following prescriptive rules but about embedding processes and culture that deliver fair outcomes for customers.