The FCA’s Simplification Drive: What It Means for MGAs

Please note an update to this article can be found here.

The FCA has published PS25/21 – Simplifying the Insurance Rules and it marks a significant step toward modernising regulation for the UK’s insurance market, including MGAs. Broadly implemented in line with the earlier Consultation Paper, these changes represent more than technical adjustments – they offer a strategic opportunity for MGAs to innovate, streamline operations, and strengthen customer outcomes. Objectives the MGAA has been strongly advocating for on behalf of its members. There is some nuance between the original Consultation Paper and the Policy Statement, which we explore in this article.

The UK remains a global hub for commercial insurance, but regulatory complexity has often been cited by market firms as a hand-brake to product development and added cost. All insurance firms have been affected, but the impact has been of particular significance to the MGA marketplace, which seeks to set itself apart from other channels as a cost effective and customer-focused distribution channel. The FCA’s goal when consulting on this issue was made very clear: reduce unnecessary burdens while maintaining robust consumer protection and leveraging the Consumer Duty as the cornerstone for good outcomes. This is unashamedly part of its drive to stimulate economic growth in line with its statutory objectives.

In the Policy Statement, the FCA openly acknowledges the role of the MGAA in advocating on behalf of its members, particularly on the question of co-manufacturing. It may not have given the MGA market everything it wanted, but equally it has not closed the door to future change. A side letter in the form of a “Statement on firms working together to manufacture products or services” from the FCA is a rather unusual step and seeks to give further comfort and clarity on how MGAs involved in co-manufacturing can apply the rules in a proportionate way. With the opportunity for nuance in the interpretation, it is an area where those involved in co-manufacturing may wish to seek independent assurance of their arrangements to ensure alignment with regulatory expectations.

1. Co-manufacturing & optional lead manufacturer

The FCA now allows firms to appoint a single lead manufacturer responsible for all PROD 4 obligations. While a case was made to allow MGAs to take this lead role, reflecting their central role in product design, the FCA has (for now at least) stopped short of granting this flexibility, citing concerns about consumer harm and data access.

The FCA has also provided additional clarification to specific questions raised:

• When a lead firm is appointed, it assumes full responsibility for PROD 4.2 compliance. Non-lead firms can rely on the lead firm but must cooperate by sharing necessary information for product approvals and reviews.
• The rules apply to intra-group setups, allowing a group company that meets the conditions to act as the lead firm.
• In Principal/Appointed Representative (AR) arrangements, the principal remains ultimately responsible for the AR’s activities within the scope of its appointment.

What this means for MGAs:

The amended rules do not allow an MGA to assume the role of sole lead manufacturer. However, the FCA has acknowledged the strength of MGA arguments and left the door open for future review. The side letter clarifying FCA expectations under current rules is also a helpful guide to practical solutions designed to facilitate a more pragmatic way of working in line with market practices. Key to this approach working is certainty in the division of responsibility. MGAs should ensure that in all scenarios where they may be considered to be a co-manufacturer, that the division of responsibility is clearly documented.

2. Customer classification – The SME watershed

The FCA has replaced the outdated “contracts of large risks” definition with two clearer definitions. These are:

• Specialist risks contracts: in line with existing product-specific categories, these are contracts of insurance covering railway rolling stock, aircraft, ships, goods in transit, aircraft liability and liability of ships. They also include contracts of insurance covering credit and suretyship where the policyholder is engaged in certain specified activities.
• Larger commercial customers: these are commercial customers of any general insurance product who exceed the thresholds which the FCA have now aligned with DISP. Where there is more than one policyholder, the thresholds apply only to the main policyholder.

This creates a clearer distinction between contracts excluded due to the nature of the risks they address and customers excluded based on the specified thresholds.

What this means for MGAs:
This alignment simplifies compliance and reduces ambiguity, but MGAs must still consider whether products could involve eligible consumers as defined in DISP 2.7, and design accordingly. A retail customer definition has not been applied at this stage, but this may come as part of the Consumer Duty rule review, expected in 2026.

3. Bespoke Contracts – Broader Exemption

The scope of the bespoke contract exemption under PROD 4 has been widened to include insurers and intermediaries, regardless of whether or not they hold co-manufacturing status. This provides greater clarity for MGAs developing niche products, reducing governance burdens where products are tailored for individual clients. Two specific points of clarification from the FCA to note are:

• A firm advertising its appetite or expertise for certain risks (e.g., adventurous sports) does not equate to marketing a bespoke product.
• Amendments clarify that product governance obligations under the Consumer Duty (products and services, and price and value outcomes) do not apply to bespoke non-investment insurance contracts exempt from PROD 4.

What this means for MGAs:
Where MGAs may historically have had a regulatory governance obligation under PROD rules, that will no longer apply if the contract comes within the exclusionary wording. MGAs should review the nature of the business they underwrite against the updated guidance and consider whether any of their embedded governance processes can be removed.

4. Product Reviews – Risk-Based, Not Time-Based

The mandatory 12-month review cycle is gone. Firms must now set review intervals based on risk of customer harm, documenting their rationale. This flexibility supports innovation but demands robust internal governance. Manufacturers are expected to communicate the appropriate intervals for product reviews to distributors within the chain. Similarly, the FCA have included guidance for distributors regarding the review of their distribution arrangements.

What this means for MGAs:
If an MGA is a co-manufacturer, they must determine and take full responsibility for the frequency of product reviews based on the product’s potential for customer harm, as there is no longer a minimum review frequency. They must regularly monitor and update this frequency if data indicates changes in risk. While distributors are responsible for reviewing their distribution arrangements, all manufacturers should collaborate by sharing information on review intervals upon request to ensure alignment if desired.

5. Training & Competence – Goodbye to the 15-Hour CPD Rule

The FCA has removed the prescriptive 15-hour CPD minimum for insurance distribution roles. Firms retain responsibility for ensuring competence but can tailor training to roles and business needs. Professional bodies like the CII will continue to set their own standards, so MGAs should align internal frameworks accordingly.

What this means for MGAs:
Internal guides on training and competence will need to be reviewed to ensure they are in line with the competence-based expectations. Simply relying on individuals’ own CPD arrangements with a professional body is unlikely to meet the FCA test as there can be no certainty that CPD assessment is related to the organisation’s needs.

6. Employers’ Liability Reporting – Simplified

The new rules mandate that the director’s certificate and annual audit must be completed by 31 August each year, covering the period from 1 April to 31 March, with no relaxation of this requirement. Firms must assess non-compliance for potential significant breaches requiring FCA notification, while the annual audit remains essential to ensure the accuracy of Employers’ Liability register data and prevent customer harm.

What this means for MGAs:
If MGAs are conducting Employers’ Liability (EL) business, they must ensure compliance with the new rules under ICOBS 8.4 by completing the director’s certificate and annual audit by 31 August each year, covering the period from 1 April to 31 March. They should regularly assess compliance, and if non-compliance is identified, determine whether it constitutes a significant breach requiring FCA notification under SUP 15.3.12G. Additionally, MGAs must obtain annual audit reports to maintain accurate and up-to-date EL register data, as this is essential to mitigating the risk of customer harm.

The changes that have been introduced, will mostly be welcomed by MGAs, but the process of simplification is ongoing and 2026 will bring further consultations, including:

• A review of the conduct rules for non-UK business
• Further simplification of disclosure and reporting
• Reviewing GAP insurance rules and pricing data requirements
• Possible further changes to the way customers are classified

No specific timeline is given for this work, but neither is there any indication it will follow anything other than the normal process of consultation, final feedback and publication of new rules. MGAs should be prepared for further change – and can be reasonably hopeful it will be of a positive nature.

The other key issue that remains in contemplation into 2026 is of course the question of co-manufacturing and the role of the MGA. There is no specific commitment to do so though, unless it becomes clear to the FCA that the risks it identified in its previous thematic supervisory work have been addressed.

The new rules take effect immediately, so where there are actions to be addressed, there is no specific grace period within which to act. Firms need to develop an action plan that covers:

Co-Manufacturing & Lead Manufacturer:

• Ensure all co-manufacturing scenarios are fully documented, with clear divisions of responsibility between parties.
• Collaborate with lead manufacturers by sharing necessary information for product approvals and reviews.
• Monitor FCA developments regarding the potential for MGAs to assume the lead manufacturer role in the future.

Customer Classification:

• Align compliance processes with the new definitions of “specialist risks contracts” and “larger commercial customers.”
• Assess whether products may involve eligible consumers as defined in DISP 2.7 and design products accordingly.
• Stay informed about potential changes to the retail customer definition in the upcoming Consumer Duty rule review in 2026.

Bespoke Contracts:

• Review the nature of underwritten business against the updated bespoke contract exemption under PROD 4.
• Identify and remove unnecessary governance processes for contracts that fall within the exemption.

Product Reviews:

• Establish risk-based intervals for product reviews, documenting the rationale for the chosen frequency.
• Regularly monitor and update review intervals based on data indicating changes in customer harm risk.
• Share review interval information with distributors upon request to ensure alignment.

Training & Competence:

• Update internal training and competence frameworks to align with the FCA’s competence-based expectations.
• Ensure training is tailored to organisational needs rather than relying solely on individual CPD arrangements with professional bodies.

Employers’ Liability Reporting:

• Review and adjust reporting processes for Employers’ Liability insurance to align with the simplified FCA requirements.

In taking these next steps to simplify the insurance rules, there is much for MGAs to be positive about. The FCA is seeking to ensure the MGA marketplace retains a place where firms can be innovative, whilst retaining trust and value in the market. It is a signal of the its intent to create a more agile, proportionate regime. In areas such as the assessment of what constitutes a bespoke contract and the rules on co-manufacturing, there is more scope for a nuanced application of the rules and for MGAs, the key to regulatory compliance is ensuring they take a balanced and proportionate approach that demonstrates a clear and unambiguous intent to comply and places the interests of customers at the centre of their decision making process.

If you would like to discuss any aspect of the way your firms seeks to comply with the new rules, please contact memberservices@mgaa.co.uk