For years, consumer credit regulation has been criticised for becoming increasingly complex.
Successive layers of legislation, FCA rules and guidance have created a framework that, while designed to protect consumers, can sometimes be difficult for firms to navigate. Many compliance functions have naturally focused on interpreting detailed rules, maintaining extensive procedures and ensuring every regulatory requirement is met.
The FCA’s current simplification agenda suggests that approach is beginning to change.
Across a number of recent initiatives, including its review of the financial promotions rules for consumer credit and its response to the Government’s Consumer Credit Act reform programme, the regulator has signalled a clear direction of travel. Rather than relying on detailed prescription, it intends to place greater emphasis on outcomes-based regulation, supported by the Consumer Duty.
At first glance, simpler rules sound like good news… The reality, as ever, is more nuanced.
Simpler rules do not reduce responsibility
There is a natural assumption that removing prescriptive requirements makes compliance easier.
In many respects, the opposite is true.
Detailed rules provide certainty. Firms know what is expected and can design controls around clearly defined requirements.
An outcomes-based approach requires something different.
It expects firms to exercise professional judgement, consider the needs of their customers and demonstrate why decisions are appropriate. Instead of asking whether a rule has been followed, supervisors are increasingly asking whether the firm can explain how its approach delivers good customer outcomes.
That places governance, oversight and evidence at the centre of regulatory compliance.
Judgement is becoming a regulatory skill
One of the most significant consequences of simplification is that compliance teams will increasingly need to advise on judgement rather than simply interpret rules.
This applies across a wide range of activities.
Marketing teams need to consider whether communications genuinely support customer understanding.
Operational teams should understand how customer journeys influence outcomes.
Boards need management information that explains not only what has happened, but why it has happened and what action is being taken.
The role of compliance is therefore evolving.
It is becoming less about policing rules and more about helping the business make informed, well-evidenced decisions.
Governance becomes the differentiator
As detailed rules are streamlined, firms will inevitably have greater flexibility in how they meet regulatory expectations.
That flexibility also brings greater accountability.
When supervisory questions arise, firms will need to demonstrate that decisions were supported by appropriate challenge, meaningful management information and a clear understanding of customer outcomes.
Policies remain important, but they are no longer enough on their own.
Increasingly, the FCA is looking for evidence that governance operates effectively in practice and that firms can explain the rationale behind the decisions they make. This reflects the regulator’s wider strategy of embedding Consumer Duty while simplifying requirements where the Duty already provides the appropriate framework.
The ALPH Legal & Compliance Perspective
At ALPH Legal & Compliance, we see the FCA’s simplification agenda as much more than a regulatory housekeeping exercise. It represents a fundamental shift in the way firms will be supervised over the coming years.
The firms that adapt most successfully will not simply reduce the size of their compliance manuals. They will strengthen governance, improve decision-making and ensure they can clearly evidence why their approach delivers good customer outcomes.
As regulation becomes less prescriptive, the ability to demonstrate sound judgement, effective governance and connected operational oversight will increasingly distinguish well-run firms from those that continue to rely on rule-based compliance alone.