In what may be seen as a late Christmas gift to the insurance industry, the Financial Conduct Authority (FCA) published Policy Statement PS25/21 on 9 December 2025, setting out its final position on reforms to insurance product governance and the Consumer Duty. The changes will be welcomed by many UK-authorised insurers, MGAs and insurance brokers, particularly those operating in wholesale and commercial markets.
The Consumer Duty, since its introduction, has attracted sustained criticism from across the financial services industry. Firms have highlighted significant implementation costs, a perceived lack of proportionality, and limited practical guidance on how the rules should apply in complex distribution chains, wholesale markets, and international business. These concerns have been amplified by the FCA’s reluctance to define clearly what constitutes a “good customer outcome”, creating uncertainty and inconsistent application.
Against this backdrop, PS25/21 represents a meaningful recalibration. While it stops short of a wholesale rethink, it signals that the FCA has listened to industry feedback and is prepared to introduce greater clarity and flexibility. The most significant changes for the insurance industry are outlined below.
One of the most impactful reforms is the introduction of a clearer distinction between small commercial customers and larger commercial buyers, referred to as the “SME watershed”.
This new approach replaces the outdated concept of contracts of large risk with a broader definition of contracts of commercial and other risks. Importantly, it aligns the treatment of large commercial customers with the “eligible complainant” definition under the FCA’s DISP rules, while preserving the exclusion for specialist risk contracts such as marine, aviation, transport, trade credit and surety.
In practice, many larger commercial customers that were previously captured by the Consumer Duty will now fall outside its scope, based on turnover and employee thresholds, and it will mean that firms can apply a uniform 'customer type' definition across their portfolio for the purposes of both complaints and broader conduct requirements. For many firms, this will result in wholesale insurance markets being largely excluded from Consumer Duty requirements, significantly reducing compliance complexity and cost.
Executive takeaway: Firms should reassess customer segmentation and confirm where Consumer Duty obligations now fall away, particularly in wholesale portfolios.
The FCA has also moved to reduce duplication across distribution chains by allowing a single firm to be designated as responsible for product governance, rather than requiring multiple “co-manufacturers”. This gives optionality to firms in terms of assigning overall product governance responsibilities, as this FCA makes clear that they can still elect to appoint co-manufacturers if they wish.
This change will materially reduce administrative burden and cost. However, the FCA has declined to permit intermediaries, including MGAs, to act as lead product manufacturers. This will disappoint many in the market, given the pivotal role MGAs play in agile product design and their proximity to SME customers.
The FCA’s rationale is that insurers, as more highly capitalised entities, are better placed to manage claims and redress risk. Notably, the FCA has stated that this position remains under review, which leave the door open to a relaxation of this position in the future.
Where a firm is appointed as the sole or lead product manufacturer, other firms in the distribution chain must cooperate with them, including by sharing management information and data necessary for product approval and review. The FCA also reiterates that, in appointed representative arrangements, principals retain ultimate responsibility for AR activities.
Executive takeaway: Governance models should be revisited to ensure clear accountability, data-sharing arrangements, and contractual alignment with the designated product manufacturer.
Under the previous regime, firms were required to review every product at least annually, regardless of risk profile or previous review outcomes. PS25/21 removes this minimum timeframe and grants firms the ability to develop their own, risk sensitive review timetables.
Product manufacturers are now permitted to adopt a risk-sensitive review timetable, allowing higher-risk or underperforming products to be reviewed more frequently, while lower-risk products are reviewed less often.
This change restores a degree of commercial common sense and allows compliance and first line product governance resources to be deployed more effectively.
Executive takeaway: Firms should redesign product review frameworks to align review frequency with product risk, performance, and customer outcomes.
The FCA has removed the requirement for staff to complete a minimum of 15 hours of continuing professional development per year, acknowledging the diversity of roles within the insurance sector.
Firms now have greater flexibility to design bespoke learning and development pathways, provided they can demonstrate that staff remain competent for their roles.
Executive takeaway: L&D programmes should be reviewed to ensure they are role-specific, outcome-focused, and capable of evidencing competence rather than merely hours completed.
The FCA has also removed the long-standing requirement for insurers to notify it of Employers’ Liability business, as well as the obligation to maintain an EL register via ELTO. These requirements were widely regarded as outdated and commercially unnecessary.
Executive takeaway: This change delivers straightforward operational simplification with minimal downside.
The FCA also consulted on the application of product governance and Consumer Duty rules to non-UK customers, acknowledging the risk of duplicative or conflicting regulatory obligations. While no immediate changes were made, the FCA has indicated that this area will be addressed in future work; a development that will be closely watched by London market firms with international client bases.
PS25/21 does not dismantle the Consumer Duty, but it does soften its sharpest edges. The direction of travel is clear: greater proportionality, clearer accountability, and reduced friction in wholesale and commercial markets.
For firms and their compliance teams, this is an opportunity to:
Revisit customer segmentation and scope assessments
Simplify product governance frameworks
Rebalance compliance spend toward higher-risk areas
Ensure governance arrangements remain robust as regulatory expectations evolve
Whilst the FCA’s overall message is pragmatic rather than permissive, for many firms, this policy statement represents a welcome and overdue course correction.
