FCA Insurance Rules Simplification: A Practical Guide to CP26/22

The Financial Conduct Authority (FCA) is consulting on changes that would narrow

the territorial scope of its insurance conduct rules, remove several disclosure requirements, give firms more freedom over how they communicate with customers, simplify the boundary for advised sales, and redenominate minimum professional indemnity insurance limits into sterling. The proposals appear in Consultation Paper CP26/22, published on 29 June 2026, and the consultation closes on 4 September 2026. With one exception, they are permissive: a firm that carries on as it does today would remain compliant.

That exception matters. The change to the territorial application of the Insurance Conduct of Business Sourcebook (ICOBS) and chapter 4 of the Product Intervention and Product Governance Sourcebook (PROD 4) is not optional, and if made would apply automatically to new contracts.

CP26/22 is the second phase of the FCA's simplification programme, following Policy Statement PS25/21 in December 2025. Where the Consumer Duty, the Principles for Businesses (PRIN) and the Senior Management Arrangements, Systems and Controls sourcebook (SYSC) already secure an outcome, the FCA is willing to remove the prescriptive rule beneath it, much of which derives from the Insurance Distribution Directive (IDD).

The FCA's cost-benefit analysis puts 4,205 regulated insurance firms potentially in scope, of which 3,897 are small, but the impact is uneven: it estimates the territorial changes would affect around 139 underwriters and 166 intermediaries, while the professional indemnity insurance change touches every intermediary. Firms with non-UK business should also read CP26/23, published alongside, on the Consumer Duty's territorial scope.

What Is the FCA Proposing in CP26/22?

The consultation contains five proposals, none of which is currently in force:

1. Narrowing the Territorial Scope of ICOBS and PROD 4

The FCA proposes to disapply ICOBS in full where both the customer's habitual residence and, where different, the State of the risk are outside the United Kingdom. Where either the customer is habitually resident in the UK or the insured risk is located here, ICOBS would continue to apply, including where UK and non-UK factors are mixed. The disapplication would run through the whole distribution chain, covering insurers and intermediaries.

Habitual residence would mean the policyholder's residential address or place of establishment. The State of the risk is usually the same, but differs for products such as property insurance, where it is where the property sits. PROD 4 would be disapplied more narrowly, only where a product is available exclusively to customers and risks outside the UK, so a product with a predominantly non-UK customer base would remain in scope if any UK customers or risks remain.

The FCA's rationale is that duplicated UK and local requirements add cost without improving outcomes. It considered a local regulation backstop, under which disapplication would depend on local rules applying, and decided against proposing one, though it is inviting views.

Two points are easy to miss:

1. PRIN other than the Consumer Duty, together with SYSC, would continue to apply to non-UK business.

2. The change would operate on a forward looking basis only. Contracts entered into before the effective date would stay on current rules, so affected firms would run two populations of business in parallel for as long as those contracts remain in force.

   
   

2. Removing Low Value Disclosures

Within ICOBS 4, the FCA proposes to remove the requirements to disclose a firm's postal address, whether it is an insurance undertaking or an intermediary, and the conflicts of interest disclosures covering a ten per cent or greater holding in an insurer, whether the firm acts for the customer or the insurer, and any exclusivity arrangement. It would also remove disclosures about the nature and basis of intermediary remuneration and employee pay, and the separate pure protection requirements in ICOBS 4.2. Its reasoning, supported by research from Which? cited in the consultation, is that these produce dense text customers are unlikely to read.

Several requirements survive:

• The firm's name and FCA registration number

• Whether a personal recommendation is being given

• Complaints and Financial Ombudsman Service information

• Fees, with the amount or basis of calculation

• Commission, where a commercial customer requests it

  
  

3. Greater Flexibility in How Disclosures Are Provided

ICOBS 4.1A currently pushes firms towards paper by requiring an active and informed choice before electronic delivery. The FCA proposes to remove that default and require instead a durable medium appropriate to the business context. Paper must still be provided free of charge on request, through the same channel the customer used to buy, and vulnerability and Equality Act 2010 obligations are unaffected.

The wider point is that the underlying obligations in PRIN, SYSC and the Consumer Duty are unchanged. Removing a rule is not the same as removing the need to think about the issue.

4. A Simpler Boundary for Advised Sales

The FCA proposes two categories of sale: advised and non-advised. The advice rules would apply only where a firm gives a personal recommendation as defined in article 53 of the Regulated Activities Order. Activity that currently counts as advice without amounting to a personal recommendation would fall out of the advised category, although the FCA expects such cases to be rare. The distinctions between advice on a fair analysis and a fair and personal analysis basis would go, and sales that cease to be advised would still be subject to the demands and needs requirement.

This changes little for personal lines firms, since consumer general insurance is predominantly sold without advice. It matters more to commercial intermediaries operating close to the advice boundary.

5. Professional Indemnity Insurance Limits Redenominated in Sterling

The minimum limits of indemnity in MIPRU 3 and IPRU-INV 13 are expressed in euros, which requires firms with sterling policies to verify equivalence at each renewal and exposes them to exchange rate movements. The FCA proposes to convert them using a central rate of 1.1674 euros per pound, derived from Bank of England daily data between 4 May 2021 and 1 May 2026. The proposed limits are:

• Insurance distribution activity, single claim: 1,300,380 euros becomes 1,110,000 pounds

• Insurance distribution activity, in aggregate: 1,924,560 euros becomes 1,650,000 pounds

• MCD article 3(1)(b) credit intermediation, single claim: 460,000 euros becomes 390,000 pounds

• MCD article 3(1)(b) credit intermediation, in aggregate: 750,000 euros becomes 640,000 pounds

  
  

This is not a review of the adequacy of the limits: the ten per cent of annual income calculation and the thirty million pound cap are unchanged. A transitional provision would allow reliance on existing cover until the next renewal after the effective date, subject to a twelve month longstop, and Section E of the Retail Mediation Activities Return would move to sterling.

What Should Firms Do Now

For most firms the proportionate response is a short, documented assessment rather than a programme of work.

• Establish which proposals apply. A UK only personal lines intermediary is realistically affected by the professional indemnity insurance change and little else; a London market broker or managing general agent is affected by all five.

• If you write non-UK business, test whether your systems can evidence the customer's habitual residence and, where relevant, the State of the risk at contract level. This is a data question before it is a policy question, and the one element that would apply automatically.

• Consider responding before 4 September 2026, particularly on the local regulation backstop and the transitional provision.

• Diary the professional indemnity insurance position: renewal date, policy currency, and who owns the Retail Mediation Activities Return entry.

• Carry out a light-touch gap analysis of your ICOBS 4 disclosures so you know what would change, but do not rewrite them yet.

• Allocate ownership of the watching brief and record the Consumer Duty reasoning behind any decision to adopt a flexibility.

  
  

Monitoring plans, staff training and customer documentation are better updated once final rules are known, rather than twice.

Frequently Asked Questions

Do the CP26/22 changes apply to insurance firms now?

No. CP26/22 is a consultation paper published by the Financial Conduct Authority on 29 June 2026, closing on 4 September 2026. Existing ICOBS, PROD, MIPRU and IPRU-INV requirements continue to apply until any final rules come into force. The FCA proposes that the changes would come into force shortly afterwards, but no date has been confirmed.

Which CP26/22 proposals would be mandatory for firms?

Only the change to the territorial scope of ICOBS and PROD 4. The FCA states that the other four are optional and that firms may continue operating as they do now. The territorial change would apply on a forward-looking basis, so contracts entered into before the effective date would stay subject to the rules in force when they were concluded.

What are the proposed sterling professional indemnity insurance limits?

For insurance distribution activity, the FCA proposes 1,110,000 pounds for a single claim and 1,650,000 pounds in aggregate, replacing 1,300,380 euros and 1,924,560 euros. For MCD article 3(1)(b) credit intermediation, it proposes 390,000 pounds and 640,000 pounds, replacing 460,000 euros and 750,000 euros. The FCA states that the level of cover is unchanged.

Would insurers and intermediaries be able to stop sending paper documents?

Not entirely. The FCA proposes to remove the default to paper and the requirement to obtain an active and informed choice before communicating electronically. Firms would still need a durable medium appropriate to the business context and must provide paper free of charge on request through the same channel the customer used to buy.

Would fewer insurance sales count as advised under the proposals?

Potentially, although the FCA considers such cases rare. The advice rules would apply only where a firm gives a personal recommendation as defined in article 53 of the Regulated Activities Order. Sales currently amounting to advice without a personal recommendation would be treated as non-advised and would remain subject to the demands and needs requirement.

How Compliance Angle Can Help

Compliance Angle supports FCA-regulated insurers and intermediaries, and firms seeking authorisation, in working through regulatory change of this kind without overreacting to it. For CP26/22, firms most often want support with:

• Assessing which proposals apply, given the firm's permissions, business model and customer base

• Gap analysis of ICOBS 4 disclosures against the draft Handbook text

• Reviewing customer communications and financial promotions where a firm intends to move towards digital disclosure

• Consumer Duty support, including documenting the rationale for adopting or declining a flexibility

• Governance and Board advisory support, including allocating ownership and briefing Senior Managers

• Professional indemnity insurance and regulatory reporting checks, also relevant to authorisation applicants

Support is scaled to the firm's business model, permissions, size and regulatory risk.

A small intermediary writing UK personal lines needs an applicability note and a diary entry, not a project.

To discuss what CP26/22 means for your firm, or for help preparing a consultation response before 4 September 2026, contact us at info@complianceangle.co.uk.

Source: Financial Conduct Authority, Consultation Paper CP26/22, Simplifying the insurance rules: A package of proposals on the scope of our rules, disclosure and advice, published 29 June 2026. The consultation closes on 4 September 2026.