Inside FCA's Latest Moves on Protection and Compliance

Unknown Speaker

Hello everyone and welcome back to the B-Compliant Podcast! I'm Vicky Pearce, and as ever, I'm here with the irrepressible Rachel MacRae. Rachel—anything exciting in compliance land this week?

Rachel MacRae

Oh, always, Vicky! But honestly, this week it's pure protection getting all the spotlight, isn’t it? The FCA's released its full Pure Protection Market Study—massive bit of work, really in-depth. I’ve barely got through the annexes myself, lots to unpack!

Unknown Speaker

Right? I was up late with those consumer research findings. It’s quite something—they’ve surveyed over 14,000 adults—which is not your average sample size. The one thing that just jumped out for me: even though claims acceptance rates are really high—like, about 98%—most consumers, they just... don’t really know what they’re covered for. That’s astonishing to me. People are buying policies, but when you ask them, “Will this actually pay out when you need it?”, there’s hesitation.

Rachel MacRae

Yeah, and that’s true for all sorts of protection products the study looked at—income protection, over-50s plans, you name it. The research basically says consumers are foggy on the details—like, when does the policy kick in, what does it really do, what doesn’t it do. Even people who have cover sometimes don’t know until a life event or claim comes up.

Unknown Speaker

Oh, absolutely—and that’s where you get these “protection gaps” the FCA keeps mentioning. We get it all the time when reviewing files: someone’s got an old policy, but nothing’s been reviewed or explained for years. Some don’t even know why they bought it in the first place! It’s not just a compliance issue, it’s a real customer issue.

Rachel MacRae

And let’s not forget—the market study points out that complaints are pretty low, relative to how many policies are out there. So the system’s not broken, but it’s probably not working as well as it could. I think the FCA’s really pushing firms to look at how they communicate—how are you explaining product limitations, how often are you checking in with clients, that sort of thing - which is why this is a really important study for Advisers to pay attention to, as often they are making the recommendations for these types of products, so it's not just all on the Insurers!

Unknown Speaker

Definitely. It all links to the Consumer Duty, doesn’t it? That need to go beyond the tick-box and really deliver good outcomes— just because it's in the T&Cs or a client has signed a declaration isn't evidence that the client's understands the products they are being distributed. All firms in the distribution chain have a role in supporting the customer throughout the life-cycle of a product, helping people make informed decisions both at outset and beyond. If people don’t understand what they hold or how it benefits (or limits them), you’ve missed a trick, haven’t you?

Rachel MacRae

Completely! And I feel like the FCA’s research is pretty much a wake-up call to sharpen up the approach to recommending these types of products to customers, from researching appropriate policies and providers, right down to how you are communicating important information - we're thinking about your meetings, your suitability reports and disclosures—making sure that it is clear and effective.

Rachel MacRae

So, moving into the nuts and bolts—the annexes in that study are actually really juicy for anyone who loves distribution models, which I unashamedly do! A lot of it dug into intermediated advice and the whole commission-based system, particularly indemnity commissions. Turns out, the FCA didn’t actually find solid evidence that higher commissions always equal higher premiums or—more importantly—consumer harm, as long as you’re running proper controls. I was surprised by that.

Unknown Speaker

Yeah, it sort of bucks what some people might expect, doesn’t it? There’s always been this idea that high commission structures automatically mean customers get a bad deal. But what they’re saying is, if you’ve got good insurer oversight and competition in the market, and you’re actively managing those controls, then commission doesn’t have to mean poor outcomes. Price sensitivity acts as a sort of natural barrier.

Rachel MacRae

Exactly. But the FCA’s not letting anyone off the hook—in those annexes they’re stressing firms have got to keep monitoring how things are distributed and how much advice people are really getting. And value—oh, value’s the buzzword! They want assessments to look beyond just the claims ratio, so it’s not enough to say “we paid out on 98% of claims, job done.” - and that means advisers recommending these products need to have research and due diligence processes that dig deeper too.

Unknown Speaker

Yeah, and product complexity comes up a lot—especially with income protection. You might have decent pricing and high claims success, but if the product is so confusing that people don’t understand it or can't use it properly, where’s the value? That’s where being able to evidence fair value—proper monitoring, segmenting your customer base, showing that different groups are all genuinely getting value—it’s not just nice to have, it’s expected now.

Rachel MacRae

That’s it. And one thing I picked up on: switching. They mention risks around policies being switched unnecessarily, sometimes incentivised by commission. It's not a huge widespread issue, but it's definitely something firms need to have on their radar: you need good governance around switching and transparency, so you're not just churning business for the sake of it.

Unknown Speaker

I think if you link it back to Consumer Duty again, it's a timely reminder for firms to reflect and maybe review their sales processes when recommending pure protection, and consider how the commission structures of these policies fits into their own wider remuneration policies. The interim report period—so firms can give feedback until March 2026—is a good window for the industry to get its house in order, if you ask me!

Rachel MacRae

Absolutely, Vicky. Fair value’s not a one-off tick, it’s ongoing. If firms aren’t regularly reviewing those arrangements, it’s time to start. Otherwise, as we've said in previous episodes, if you leave it until the regulator comes knocking, it’s already too late.

Unknown Speaker

So, while everyone’s busy reading annexes, the FCA’s also keeping us on our toes elsewhere! First up—AI. The “Mills Review” is out now, calling for input on how artificial intelligence might shape retail financial services in the long term. Fancy a bit of future-gazing, Rachel?

Rachel MacRae

Always! They’re looking at everything from how AI could change the consumer landscape, to what it might mean for the way firms are run and how the regulator itself will need to respond. Importantly, they’re saying: “We’re not rushing to make new AI-specific rules. We want to see how our current framework can support both safe innovation and consumer protection.” Firms have until February to respond—that’s not that far off, really.

Unknown Speaker

And from what I spotted, it's all about “responsible innovation.” If you’re developing or already using AI—whether it’s for customer service, data analytics, or anything else—now’s the perfect time to take stock of your governance and controls. Make sure those risk assessments are up to scratch. If you need help, you know where to find us, eh?

Rachel MacRae

Couldn’t agree more. It reminds me a bit of what we chatted about just a few episodes back on AI risk in compliance—firms need to show they can manage these new risks responsibly and keep consumer outcomes right at the top of the priority list. It’s another chance to be ahead of the curve instead of constantly playing catch-up.

Unknown Speaker

Speaking of catching up—UCITS funds have a bit more breathing room. The FCA’s Handbook Notice 137 actually confirms they’ve given a one-year extension for compliance with those revised COLL concentration rules—so now the deadline’s the 31st January 2027. Basically, it buys time for fund managers, but also for the regulator to maybe sort out some practical wrinkles. Mainly, they want to avoid unnecessary fund closures, which is a relief for investors and fund managers alike.

Rachel MacRae

And one for the compliance geeks: the FCA’s new Enforcement Watch newsletter has launched. It tracks what the regulator’s investigating and highlights common issues. I've signed up for it, and I would encourage all our listeners to take a look too... most of the 23 enforcement operations started in the latter part of 2025 relate to regulatory breaches (which can happen to anyone) - so being in the know about these enforcement operations could be really important to make sure that you don't end up in the same position.

Unknown Speaker

Right—no excuse for missing trends or priorities now. Well, I think that just about wraps us up for this episode. Rachel, as always, top insights—thanks for keeping me on my toes!

Rachel MacRae

A pleasure as ever, Vicky! And thanks for tuning in, everyone. If you’ve got feedback or want us to dive into anything else, drop us a line. We’ll be back soon with more updates—goodbye for now!

Unknown Speaker

Take care, Rachel! Bye for now, everyone.