The Big Question: What regulatory risks or opportunities would UKGI see under a Reform UK government?

Nigel Farage has hinted that a Reform UK government would pursue a sweeping rollback of regulation, putting the Financial Conduct Authority firmly in its sights. But what would reforming – or even dismantling – the FCA really mean for insurers, brokers and customers?

James Daley, managing director at Fairer Finance

Back in November, Nigel Farage made a speech making it clear that a Reform government would instigate a bonfire of regulation. He turned particular firepower on the FCA and suggested there would be major changes.

But with over three years to go to an election, Reform is naturally fairly light on the detail about exactly what it would do and how it would do it.

At the broadest level, stripping back regulation around insurance will simply reopen the door to bad practice. Today’s insurance market is far from perfect. But in the 20 years since it came into FCA regulation, governance and standards have generally improved. Trust in insurers certainly has.

For much of the past two decades, the industry was tarred with the brush of various mis-selling scandals – from PPI to card protection insurance. But Consumer Duty is changing cultures and improving outcomes. We can only assume that a Reform government would end the Duty and be comfortable with more consumers getting a worse deal.

But there’s a big difference between what parties say in opposition and what they do in practice. Once they are sitting in the Treasury and understand the possible consequences of serious deregulation – they may change their mind.

And, of course, any new government provides an opportunity to get a focus on areas that the current administration have slammed the door on.

So while a Reform government leaves me fearful, the answer is to educate the next generation of politicians and do what we can to prevent hasty, ill-thought-through action. That’s certainly where we will focus our attention if it looks likely that Nigel Farage is going to end up in Noumber 10.

But if a week is a long time in politics, then three and a half years is a lifetime.

David Allison, head of intermediary consultancy, South at Insurance Compliance Services

Everyone who knows me is aware that I can be highly critical of our regulator, but that’s only because I feel the need to challenge the way the FCA does some things – not because I want to see it wiped clear from the board.

A proposal to dismantle the FCA in favour of self-regulation would create huge risks for the insurance market and consumers.

I think we have seen enough bad treatment of consumers crawling out of the woodwork since the insurance sector became regulated 20 years ago to realise that some things did need fixing – for example, the ‘loyalty penalty’.

Removing that framework would eliminate protections for vulnerable customers, reduce oversight of product suitability, dilute training and competence requirements and probably remove access to the Financial Ombudsman Service.

It would also create scope for unchecked conflicts of interest and unregulated premium finance practices. The UK’s international standing, widely regarded as a global benchmark, would be weakened – diminishing market confidence.

While some insurers and commercial clients might welcome reduced administrative burden, the benefits would be narrow and outweighed by systemic risks. A self-regulatory model would be unable to maintain market discipline. Industry-led accountability often lacks robustness and, ultimately, statutory regulation is usually the best solution.

A full overhaul would also carry operational disruption. Intermediaries’ systems and sales processes are built around existing regulatory obligations and any transition would impose significant additional cost and uncertainty.

Scrapping the FCA without a credible, independent statutory replacement would expose consumers, destabilise the market and undermine the UK’s global reputation for regulatory integrity.

Essentially, my message would be – don’t leave it to the industry to mark its own homework. That never ends well.

David Sparkes, regulation director at Biba

It is worth recognising that the FCA is just one of a number of regulators that a member of the Reform Party has stated could be abolished under a Reform government.

Biba has long called for the removal of rules that generate more costs than they do benefits for customers, but there needs to be a set of baseline obligations on firms, so that we have a level playing field for all market participants and would-be participants. And it would need someone to police those baseline obligations.

Biba has worked constructively with the FCA to reduce the impact of regulations that increased frictional costs, in turn driving up premiums, or forcing firms to consider whether to withdraw from certain markets, so reducing competition.

That the regulator listened and acted is positive – and that is the sort of regulatory action that generates good outcomes for all.

With any change in regulatory environment, we must think about the impact on customers, as well as on the industry. What impact would it have on consumer trust, as well as outcomes?

Steps are being taken that promise an improved regulatory environment, so would it be better to follow these through before considering changing route?

Nafisah Hussain, acting director of public policy at the International Underwriting Association (IUA)

It is difficult to assess changes to the UK’s regulatory environment resulting from a change of government with certainty, since the next election may still be more than three years away and so there are few concrete policies from Reform UK or any other parties.

There are, however, a number of areas of potential development that present both opportunity and risk. Most important is the need to ensure a proportionate approach to regulation, with a clear distinction between the treatment of retail and wholesale insurance.

Proportionality also means making sure the cost of setting up business in the UK and the day-to-day compliance costs of operating are not unduly prohibitive for firms.

The FCA has, in recent months, ramped up efforts to simplify insurance rules, which has been encouraging. But the pace of change must accelerate to strengthen the UK’s competitiveness and reinforce its position as a global centre for insurance. This is, therefore, an area of likely further focus for any future government.

Another possible area of attention will be the future alignment of UK regulations with those in the European Union.

A stable and consistent approach to regulation is important and has made London an attractive destination for international insurers.

Any future changes need to be subject to a robust cost-benefit analysis and must consider the multi-national nature of London market companies. The IUA is committed to working with all political parties to improve the efficiency and competitiveness of our industry.

Christopher Croft, chief executive at the London and International Insurance Brokers’ Association (Liiba)

The challenge with this question is the lack of detail on Reform’s proposals. It is simply not conceivable that it would actually seek to abolish the FCA. And the consequences for the market if it did would be seriously detrimental. London being seen as a responsibly regulated market is a key selling point for international clients.

That said, there are improvements to be made by pursuing the drive for regulation for growth. The FCA has made progress towards a genuine distinction between consumer and commercial business. It should be managed effectively to ensure it delivers a significantly different supervisory regime for Liiba members who do not primarily deal with consumers.

Interaction with the regulator should be minimal – an annual financial return and some complaints data. That would reduce the regulatory burden and, with it, the cost that has to be passed on to clients.

There are more ways in which the FCA’s general approach could be improved. Too often it produces consultations on proposed changes without producing any evidence of there being market failure that needs addressing.

And it does not give enough thought to whether the objective could be achieved within its existing rules and powers. All of which can lead to unnecessary – and costly – change.