FCA ditching PPI mis-selling rule in insurance sourcebook overhaul  

The UK Financial Conduct Authority (FCA) today proposed scrapping a consumer protection rule introduced in the wake of the £38 billion payment protection miss-selling scandal. Removing the rule is one of several measures the regulator says will help “reduce regulatory costs” and “support growth”.

“We are stripping back our insurance rulebook by removing ineffective, outdated or duplicated regulation, as part of our drive to become a smarter regulator and support growth,” said Matt Brewis, director of insurance at the FCA, in a statement accompanying consultation paper 25/12.  

The regulator had “listened to industry” and was “taking action”, said Brewis.

“In doing so, we will reduce regulatory costs and increase the competitiveness of the already world-leading UK insurance sector, while maintaining vital protections for smaller customers,” he added.

The FCA is also proposing to remove the requirement for insurers to review the products they sell every year and to axe the current 15-hour training requirement for sales advisers.

It said insurers would still be required to “set clear expectations” as to the frequency at which they would review products, taking into account “the full range of data”, and that it “would challenge” any review periods it disagreed with.

Since the advent of the Consumer Duty, firms have been required to monitor customer complaints data. The most recent data from the FCA, published on April 29, revealed there were 1.5 million complaints about insurance and pure protection products in 2024.

In separate data, the Financial Ombudsman Service revealed that it received 22,075 new general insurance/pure protection complaints in the second half of 2024.

PPI scandal

Payment protection insurance (PPI) mis-sold in the first decade of the millennium resulted in a £38 billion redress bill for financial services firms. In the years since, insurance products have been a recurring source of supervisory action from the FCA.

In February 2024, the regulator effectively shut down the Guaranteed Asset Protection (GAP) insurance market overnight after a review found that insurers were paying up to 70% of premiums value out as commission to introducers. Some firms were subsequently allowed to recommence selling GAP insurance in May 2024, after taking action to address these “fair value” concerns with their products.  

The consultation proposes removing ICOBS 5.1.2.R from the handbook, which was introduced in 2013 precisely because of the mis-selling scandal. It requires firms to “take reasonable steps to ensure that a customer only buys a policy which he is eligible to claim benefits”.

However, the FCA said the Consumer Duty “delivers similar levels of protection” to ICOBS 5.1.2.R and that PPI “is no longer sold alongside loans, credit cards and mortgages”.

Similarly it cited the Consumer Duty regarding its proposal to remove ICOBS rules that relate to insurance sold as part of a packaged bank account. Packaged banks accounts were the focus of FCA conduct work around mis-selling in 2016.

A spokesperson confirmed the FCA has not carried a review of packaged accounts since 2016, but added that its recent work on good and fair practice applied to such accounts.  

Large insured clients

The FCA is also proposing to introduce a new definition called “contracts of commercial or other risks”, which aims to ensure smaller commercial customers continue to receive appropriate protection, while reducing the regulatory burden for firms that deal with larger commercial customers.

Customers falling under the new definition are considered by the regulator to have “sufficient resources” to protect their interests in other ways, although they will still be protected by its Principles of Business.