In May 2025, the FCA published its latest consultation for the insurance sector, CP25/12, which sets out a series of proposed changes aimed at simplifying certain insurance rules. With the feedback deadline fast approaching on 2 July 2025, firms still have time to influence the final shape of these changes before the FCA commits to them via a Policy Statement.
The impact of the proposed changes will vary depending on the firm’s business model. In this post, we unpack the core proposals, clarify who they apply to, explore the broader context and potential challenges, and outline what firms need to do next.
What the FCA Is Proposing: Replacing the Old with the New
1. Clarity on applicable rules
Recognising that the Handbook lacks a consistent definition to distinguish between SMEs and larger commercial customers, the FCA is proposing a new definition for contracts covering commercial and other risks, ensuring they meet specific criteria. These include:
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- Insurance contracts for railway rolling stock, aircraft, ships, goods in transit, aircraft liability, and ship liability.
- Insurance contracts for credit and suretyship, applicable when the policyholder is engaged in specific activities.
- Insurance contracts for other non-investment risks, covering policyholders who fall into certain categories, such as enterprises that are neither micro-enterprises nor small businesses.
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What does this mean for your business?
The new definition will replace legacy mechanisms such as balance sheet, turnover, and employee number thresholds, which were historically used by firms to determine the scope of applicable FCA rules. As this created ambiguity about which customers fall outside the scope of specific rules and definitions in ICOBS, PROD, and the Consumer Duty, the FCA intends for the new definition to provide clarity and consolidation.
2. Updating Product Governance
The FCA is also seeking to streamline certain Product Governance rules applicable to the insurance industry, following feedback received in DP 24/1. Industry concerns were raised that the current rules do not accurately reflect market structures, leading to duplicated processes and unnecessary costs. In response, the regulator is proposing changes to co-manufacturing arrangements, bespoke (‘tailor-made’) exclusion rules and the frequency of product monitoring and review.
Co-manufacturing arrangements
The FCA received feedback that broadly supported the idea of a lead firm being responsible for compliance with PROD 4.2. However, respondents sought further operational clarity, with the FCA in CP25/12 outlining that to qualify as a lead firm, it must be an insurer or Lloyd’s managing agent, have sufficient involvement in the manufacturing process, and all co-manufacturers must explicitly agree in writing that the lead firm is responsible for compliance, liable for breaches and claims related to redress, and there will be sufficient information sharing between co-manufacturers.
The FCA also intends to give firms the flexibility to choose whether to follow the current rules or select a lead firm to be responsible for compliance with PROD 4.2.
Bespoke contracts exclusion
The regulator also clarified that the bespoke contract exclusion will be extended to cover both insurers and intermediaries, even if they are not the product manufacturer. As a result, all bespoke non-investment insurance contracts, including both general insurance and pure protection, will be excluded from PROD 4.
The FCA also clarified that a contract will be considered bespoke if it is created solely to meet the needs of, and at the request of, a customer. This includes either an adaptation of an existing product that goes beyond its standard coverage or a new contract developed in response to the customer's request, and must not originate from a product that is marketed for general distribution, including to niche markets.
Product monitoring and review
The FCA also intends to remove the fixed 12-month review requirements currently set out in PROD 4.2 and PROD 4.3, which stipulate the requirement for annually reviewing firms' non-investment insurance products and distribution arrangements.
Instead, firms would have the flexibility to determine review frequency based on each product’s nature and risk profile. However, the FCA expects firms to adjust review intervals in response to relevant new data that indicates potential customer harm.
What does this mean for your business?
With CP25/12 signalling an intention towards less prescriptive requirements, firms having greater flexibility in applying the rules, may contribute to inconsistencies in implementation across the industry, resulting in tiered consumer outcomes. Such unevenness can lead to increased complaints, reputational harm, and a decline in customer confidence.
3. Modernising ICOBS disclosures and employers’ liability
Accordingly, following the FCA’s intention to update Product Governance (as highlighted above), where it provided clarity regarding the lead firm, the regulator has also clarified that the lead firm will be responsible for ICOBS disclosure requirements and for producing the IPID (Insurance Product Information Document).
Additionally, the FCA has recognised that the employers’ liability market has changed considerably since the introduction of the ICOBS 8.4 rules. Similarly, the annual reporting rules set forth in SUP 16.23A were introduced to address difficulties in tracing employers’ liability policies at the time, but these challenges are no longer prevalent. As a result, acknowledging this shift, the FCA is proposing to remove these requirements.
What does this mean for your business?
These proposed changes should help reduce the regulatory burden. By confirming that the lead firm holds responsibility for regulatory disclosures in multi-party distribution chains, the FCA provides greater certainty and helps reduce the risk of duplication or oversight. Similarly, the removal of notification and reporting requirements for general insurers providing employers’ liability products is an example of regulatory streamlining, as it eliminates outdated obligations, reduces the risk of redundant reporting, and ultimately frees up operational capacity.
4. Minimum knowledge, training and competence requirements: is competence replacing the clock?
Although the FCA has reiterated its position that employees must possess the necessary skills, knowledge, and expertise to perform their roles effectively, it is proposing to remove the mandatory minimum requirement of 15 hours of CPD for employees of non-investment insurance and funeral plan distributors. The regulator believes the current 15-hour CPD requirement is "overly prescriptive" and does not provide firms with the flexibility to offer training "appropriate for their employees' roles". Additionally, the regulator intends to grant these firms greater flexibility in recording training and competency provisions in a manner that best suits their business, and employee roles.
What does this mean for your business?
Regulated firms will be familiar with the phrase, if it is not documented, it has not happened. With these proposed changes, the responsibility for documenting discussions, decisions and actions, increases, especially with judgments becoming the industry standard. This means firms must not only record what they do but also document the rationale behind their decisions, and even why certain actions were not taken.
How can Thistle Initiatives support you?
As certain rules become less prescriptive, shifting from an objective to a subjective standard, the FCA is presented with a wider remit and greater discretion to interpret and challenge firms where it believes intervention to be necessary.
For firms, this means that the boundary between 'compliance' and 'non-compliance' is blurry. The new playing field is underpinned not solely by adhering to the rules, but by the strength of their judgment, justification, and documentation.
At Thistle Initiatives, we work closely with firms in the insurance industry to ensure they are well-positioned for regulatory change. So whether you are sailing through calm waters or facing the challenge of swimming against the regulatory tide, get in touch with us today.
Meet the Expert
Abdul-Muheath Muhammad, Consultant 
Abdul-Muheath joined Thistle Initiatives in 2024 and has since supported firms across the insurance, credit, and mortgage sectors. He has experience managing FCA applications, having assisted over 50 firms in obtaining FCA authorisation. He also supports clients by delivering regulatory training and workshops, conducting compliance audits and health checks, and responding to a range of compliance queries for his varied client base.
Previously, he worked in the compliance department of a brokerage firm, where he conducted monitoring activities for products regulated by a range of bodies, including the FCA, OFGEM, OFCOM, and OFWAT. He also has experience handling alternative dispute resolution (ADR) cases.