Our Rule Review Framework

Our rule review work is one part of our policy-making cycle. This cycle starts with us horizon scanning and clearly defining an issue. We identify instances of harm in financial services markets, for example where markets are working poorly and not providing sufficient benefit to users. We gather information from a range of activities to identify potential harm. These include day-to-day supervisory contact with firms, calls we receive from consumers, analysing market intelligence and our research as well as our ongoing engagement with stakeholders and their representatives. We do not act to remedy every potential harm. We consider the potential costs and benefits involved and our objectives. 

Once we have identified potential harm, we aim to diagnose its cause, extent and potential development. To do this, we must decide whether we already have enough information to assess the issue properly or if we need to carry out specific work to better understand it. We have a range of diagnostic tools. These tools include market studies as well as policy work such as calls for inputs and discussion papers. We can also analyse individual firms or several firms simultaneously, for example through our multi-firm work and thematic reviews. We aim to do this in a way that is cost-effective for us and for firms.

When we understand the potential harms, we then consider whether they can be resolved entirely or only mitigated. To do this we assess the range of our available regulatory tools and make a judgement about whether these tools can remedy or mitigate the harm cost-effectively. Rulemaking is just one of our possible remedies. Other remedies include publishing guidance or other communications to firms or their customers or encouraging industry to act voluntarily to address a problem. We can vary or remove firms’ permissions to carry out certain activities. We can use our authorisations approach to control firms’ and individuals’ entry into the market. We also have our enforcement remedies where we have found breaches of our rules. 

Reviewing the effectiveness of our remedies helps us to make better decisions, and to add more public value in the future. There is always the risk that regulatory interventions, including rulemaking, have unintended effects or don’t work as well as we anticipated. External factors and changes in the market may affect how well a remedy, like a rule, is working. So we need to understand whether our remedies are working as we intended and to measure their impact where possible. This also helps us to understand if our intervention has been proportionate to the outcomes achieved. If we find that the problems we identified in a market are still occurring and our remedies have not had the intended effect, or had a negative effect, we consider our next steps and whether to take further action. 

This Framework focuses on our approach to monitoring and reviewing our rules. This is in line with the Financial Services and Markets Act 2000 (FSMA) (as amended by the Financial Services and Markets Act 2023) which requires us to keep our rules under review generally. FSMA also requires us to publish a statement of policy on our review of rules. 

A clear policy on our approach to monitoring and reviewing our rules will help us to think carefully about the effectiveness of our rules throughout our policy-making cycle. When we look at whether to review rules, we look at whether the rule is working as intended to address the harm we identified, whether it is delivering wider unanticipated benefits or whether it is leading to other unintended consequences.  These will shape whether and when we may review a rule. 

This Framework applies to all our rules, which are found in our Handbook. The duty in the Financial Services and Markets Act 2023 to keep our rules under review does not apply to any materials that are not rules. However, when we review a rule, we can choose to review our guidance, any waivers or modifications and related materials to see if these are working well. 

We can also use monitoring and the types of review in this Framework to assess the effectiveness of other types of interventions that we make. 

Our Handbook is detailed and many of the rules inter-relate. We will need to keep this in mind to ensure that we do not review rules in isolation as this may cause problems if we decide, after review, that a rule is not working as intended and needs to be changed. 

Some of our rules are in areas of responsibility shared with the Prudential Regulation Authority (PRA) and the Payment Systems Regulator (PSR). Our rules may also be determined or influenced by the same legislation or codes affecting other regulators, for example the Companies Act 2006 and the Corporate Governance Code. 

These regulators have their own review processes and may also be directed by the Treasury to review specific rules or, in the case of the PSR, directions.

Where we propose to review a rule that is in an area shared with another regulator, or where we are directed by the Treasury to do so, we will work with that regulator to agree the best way to carry out the review. We have formal memoranda of understanding with the PRA and the PSR which set out the framework for how we co-ordinate and co-operate in these kinds of scenarios. 

We also work together with other regulators as members of the Financial Services Regulatory Initiatives Forum to produce the Regulatory Initiatives Grid. This sets out the regulatory pipeline, including initiatives that the regulators are working on together. This helps us to understand each other’s plans, including for upcoming reviews and, where appropriate, to coordinate. 

Many of the markets we regulate operate internationally. We actively contribute to the development and implementation of international standards in global standard setting bodies. These support the management of cross-border risks to financial stability, market integrity and general confidence in the global financial system. They also support the development of common approaches with counterparts. We supervise and enforce rules on the basis of these standards in the UK. Where our rules flow from international standards, we are in general unlikely to depart from these without a compelling justification in line with our objectives. We would need to carefully consider the effect that changing these rules may have if this were to be the outcome of a review.

Our proposals advance the FCA’s strategic objective to make markets function well by ensuring our rules are having the intended effect on the market and are addressing the harm we wanted to target when we made them. 

To make general rules we must be satisfied that they are necessary or expedient to advance one or more of our operational objectives to protect consumers, protect and enhance the integrity of the UK financial system and to promote effective competition in the interests of consumers. The Framework applies to all our rules, regardless of the operational objective they advance. It sets out how we will consider whether our rules are meeting their intended outcomes which will include considering whether they’re still advancing one or more of these objectives. 

By ensuring the rules in our Handbook are working as intended and undertaking reviews in response to evidence that this is not the case, our proposals are also aligned with our secondary objective to facilitate the international competitiveness of the UK economy and its growth in the medium to long term.  

We will ensure the approach to our rules supports our commitment to proportionate regulation.

Figure 1: How the elements of the Framework fit together

Figure 1 shows a range of ways in which we can assess the effectiveness of an intervention, and how these relate to our activities, the outputs from these activities and the outcomes we seek to achieve.

For many rules implemented after the Framework is in place (a new rule), we will collect data and monitor this in a systematic way. We may choose not to actively monitor new rules where it is not feasible to do so, where collecting data and intelligence would be disproportionate for the FCA or stakeholders, or where it is not otherwise an effective use of our resources. We may also decide not to monitor where the rules relate to minor policy or rule changes with minimal impact.

• Where we do plan to monitor, we will set our intended outcomes when we develop the policy and rules. We may develop a causal chain setting out how we expect these outcomes will be achieved. We will then decide the key metrics we will monitor.
• Once the rule is in force, we will start collecting and monitoring data on how well it is meeting, or is on track to meet, its intended outcomes. We will also consider relevant evidence from stakeholders. The appropriate timeframe for monitoring will depend on the specific circumstances for the rule. 
• If the data suggests that there may be a problem with how the rule is working, we will consider whether this can be fixed easily or whether to do an evidence assessment. An evidence assessment aims to synthesise any data which indicates whether the key intended outcomes of a rule or policy intervention are being, or are on course to be, met. We decide whether or not to do an evidence assessment based on our plans, existing commitments and resources. 
• The possible outcomes of the evidence assessment include starting the process to consider varying or revoking the rule, where the evidence suggests this is necessary and appropriate. Alternatively, we could choose to return to monitoring the rule, issue clarification or guidance on how the rule operates to improve stakeholders’ understanding, or plan a more in-depth review. 

We will also continue to maintain our planned pipeline of impact evaluations. To ensure that we have the right data for this kind of analysis, this is best planned at the stage we are developing the policy and rules. This contrasts with our wider approach of monitoring data or the market to decide whether it suggests a review is needed.

We may not have been systematically monitoring data for existing rules already in our Handbook, or we may have implemented new rules and chosen not to monitor them. In these cases, we may have to take a different approach to when we do reviews.

Due to the significant number of rules already in the Handbook, we may consider these rules for review where we:

• have evidence that the rule is not working as intended
• want to understand the overall effect (positive or negative) that the rule has on the market, while also considering if there have been substantive changes in circumstances, including market developments or the introduction of other rules, which affect how the rule is functioning

In some cases, we may have been collecting data relating to the rule, for example through our supervisory work, which we can use to assess how it is working.  In other cases, stakeholders might actively give us evidence about how the rule is working which we will consider carefully alongside all other available evidence.

We take decisions to review rules based on our plans, existing commitments and resources. We will also take account of the adequacy of available data and the likelihood of improving any gaps in a proportionate way.

Once we have decided to do a review, the stages will broadly follow the same process as for new rules from evidence assessment onwards.

The Treasury can also require us to review a rule (see Government-directed reviews).

We set the outcomes we are seeking to achieve for new rules and policies so that we can assess whether they are working as intended once they have been implemented.   

Our statutory objectives shape and guide our policy development and rule proposals. We generally explain the outcomes we want to achieve by reference to how they advance one or more of our statutory objectives.   

Monitoring is an important way for us to build our understanding, and evidence, of how our rules are working. We will monitor new rules and policy unless they relate to minor policy or rule changes with minimal impact, for example administrative changes or less significant policy interventions like those we consult on via our quarterly consultation papers. In these cases, we may decide not to monitor. We may also choose not to actively monitor new rules where it is not feasible to do so, where collecting data and intelligence would be disproportionate for us or stakeholders or where it is not otherwise an effective use of our resources. 

When we monitor, we will typically monitor the ‘package’ of rules that make up a policy, as opposed to monitoring each individual rule. 

For ultimate outcomes that take a long time to materialise, we may monitor intermediate outcomes as leading indicators of progress towards our ultimate outcomes.  

Where we identify potential unintended consequences of the rule, we may also plan to monitor these. For example, if firms increase the prices of ancillary products to offset the costs of implementing a product-specific fee cap.  

In monitoring our rules, we need to differentiate between outputs and outcomes. Outputs relate to our activities. Outcomes are what is achieved because of the outputs. The examples in Table 1 illustrate the difference between outputs and outcomes. 

Table 1: Examples of outputs and outcomes

More broadly, we monitor progress against our key areas of focus, as set out in our published Strategy and Business Plan. We report on our performance against our Business Plan in our Annual Report. 

In many cases, the outcomes and metrics for our new rules will align with our organisational strategic outcomes and metrics set out as part of our strategy.  We may therefore also use those metrics to assess whether there may be an issue with our rules. 

We may use a causal chain to explain how we believe an intervention, like new rules, will work by setting out the steps between the outputs and the outcomes we want to achieve. A causal chain may be set out in the CBA, which is the document in which we assess the costs and benefits of our proposals.  

Causal chains will inevitably include some assumptions, for example about changes in behaviour that may result from our intervention. However, they are a useful tool to help us understand how we will bring about the change we want to see. 

We can monitor outcomes, including lead indicators or intermediate outcomes, to help us assess whether the assumptions we made in the causal chain are correct. To do this, we identify a set of metrics relating to each outcome to help us establish whether the rule is working as intended. We need to examine and frame these metrics carefully to avoid mis-interpreting movements and to account for predictable variations that recur each calendar year (‘seasonality’). For some rules, we may find it useful to measure outputs as well as or instead of outcomes (see the difference between outputs and outcomes). 

Evidence for our metrics can come from different sources of data. We collect a lot of data and have a variety of sources to help us understand how our rules are working, including our authorisation, supervision and enforcement work.    

The following are examples of possible sources of data for our metrics: 

1. Stakeholder feedback gathered through, for example, roundtables, focus groups and other forums as well as evidence proactively provided by stakeholders to us about how the rules are working. 
2. Our ongoing engagement with stakeholders’ representatives, for example through trade bodies, industry led bodies and industry associations, consumer organisations and civil society. 
3. Research, such as surveys like the FCA’s Financial Lives Survey and Practitioner Panel Survey and insights from behavioural analysis, including into consumer experience. 
4. Feedback from our statutory Panels and advisory committees. 
5. Our supervisory work, including ongoing contact with firms and our multi-firm reviews. 
6. Information provided by firms through regulatory returns and reporting. 
7. Complaints data and data from the Financial Ombudsman Service and other regulators.  
8. Information from our enforcement work and primary and secondary market oversight work. 
9. Market intelligence, including from wider monitoring of the market, our market studies and our thematic reviews. 
10. Parliamentary feedback including MPs’ letters, Parliamentary debates, and Select Committee inquiries. 
11. Third party data, such as the media, market research firms and financial data providers. 
12. How similar measures, and reviews of these, have been implemented by other bodies such as authorities in other jurisdictions. 

These data sources are also relevant when we decide to do a review and want to explore in more detail how the rule is working. At that stage, we may also need to request further information from firms or to do further consumer research. 

As part of the CBA, or earlier analysis before implementing rules, we typically establish a baseline showing the state of the market before our intervention and we also consider how it would have changed over time without our intervention (counterfactual). Ideally, we will collect data for the baseline for several time periods (months/years) before implementation to understand underlying trends or seasonality in the data. However, often this may be unfeasible or disproportionate.  

Once the rule has been implemented, if we plan to monitor the policy, we will collect or monitor data to assess progress. Ideally we will collect and monitor at regular intervals and compare this ongoing data against the baseline or counterfactual. The appropriate frequency will depend on the circumstances of the rule and availability of meaningful data. For example, we may collect some data monthly, and some annually. We will consider proportionality, weighing the value of the data against any cost for firms to provide the data and the costs of collection. 

If there are signs that the rule is not working as we intended, we may decide to conduct a review of the rule (see Types of review and how and when we undertake them). 

If the data and information we monitor indicates that we are on track to achieve the intended outcomes of the intervention, we will continue to undertake further monitoring.  The length of time over which we monitor will depend on the relevant rule. Once we are content that a rule is working as intended, we can treat it as an existing rule and, where necessary, respond to evidence that it may need to be reviewed. 

We are committed to ensuring there are clear and appropriate channels for our stakeholders to raise concerns about specific rules, as part of the Framework. We have set out at How we consider stakeholder feedback different ways that stakeholders can already feedback to us about our rules. We are also looking at ways in which stakeholders could more easily share evidence that a rule is not working as intended. We are considering: 

• a feedback option embedded in our online Handbook, so stakeholders can easily feedback on specific rules 
• a feedback option on our website for stakeholders to provide feedback on any rule

Reviewing rules, and changing rules because of our reviews, takes time and resource. It can also increase uncertainty for firms and individuals applying our rules. It is important that stakeholders providing feedback set out, with supporting evidence: 

• what is not working  
• the effect of the rule not working as intended 

This will help us to understand what is happening and, where appropriate, to prioritise.  

We will consider any feedback received and, where we agree there may be a need for a review, we will build this into our organisational planning and prioritisation processes. This will need to consider work we have already planned such as the repeal and replacement of retained EU law, which is a significant exercise involving the review of around 35 policies for which the FCA has responsibility, as set out in Our immediate priorities for review below.  

We cannot commit to undertaking a rule review in response to every piece of feedback.

An evidence assessment is a process of collecting and analysing available intelligence and information, which allows us to provide an assessment of whether the rule: 

• is on track to achieve its original outcomes or objectives, for example as set out in the causal chain at the policy implementation stage 
• has resulted in any implementation issues or unintended consequences 
• can be improved, or may be improved with more evidence, to better meet our intended outcomes  

We may consider doing an evidence assessment where monitoring suggests that the rule is not working as intended and we need to better understand the underlying reasons for this. Our focus is to assess if the key changes expected in the policy’s causal chain have occurred, and the reasons for these changes, without necessarily isolating the exact causal effect of the intervention. It focuses on the early or intermediate part of the causal chain, to understand effects without providing precise quantitative estimates.  

For existing rules where we did not set out a causal chain at implementation, it may be difficult for us to establish outcomes against which we can measure whether the rule is working well. In these cases, we will set out to understand the overall effect (positive or negative) that the rule has on the market, while also considering whether there have been substantive changes in circumstances, such as market developments or the introduction of other rules, which alter how the rule is functioning.  

An evidence assessment is designed to be informative and credible, while being less resource- intensive. It is also flexible, allowing us to design a review that is appropriate for the relevant rule and what the data shows may need to be addressed. 

In most cases, we will use existing intelligence we already hold, particularly data that has been collected through any monitoring or our supervisory work. We might supplement this with qualitative data, such as evidence provided by stakeholders or their representatives including trade associations, consumer groups and our statutory Panels. This enables us to take a quicker, more agile approach to assessing a rule or policy.  

We will undertake evidence assessments internally, building on our expertise. 

A post implementation review should assess whether the implementation of a rule has been successful, as measured by key changes, outcomes and discussions with stakeholders.  

We expect that this process will require data and stakeholder engagement beyond that collected during the monitoring process and we may use external parties to help us with parts of the review. This means a post implementation review is likely to require more time and resource than an evidence assessment.  

Typically, and in line with Government practice, we use a post implementation review to establish whether, and to what extent, the rule:  

• has achieved its original objectives as set out in the consultation paper or policy statement 
• has been implemented and complied with as intended 
• has resulted in any unintended effects 
• has objectives which are still valid 
• is still required and remains the best option for achieving those objectives 
• can be improved to reduce the burden on business and its overall costs 

A post implementation review will typically seek to identify areas of a rule implementation and delivery process which worked well, areas which could be improved upon and how external factors have influenced the context of the delivery. As such, we expect to use the outcomes of a post implementation review to guide our decisions on whether rule changes or further guidance are required, as well as influencing the implementation and delivery of future interventions. 

Our staff typically undertake post implementation reviews, often with input from independent experts, especially for larger reviews. 

An impact evaluation is our most rigorous tool for assessing the impact of our interventions. This type of review focuses on using causal methods to quantify impacts. They will be planned for in advance, at policy development stage, to ensure we collect the correct data.  

We will make sure that we have a feasible plan for evaluation before implementing rules. A good design will allow us to analyse the causal impact of our rules, separating this from other changes in the market. This fundamentally relies on establishing a plausible counterfactual to measure what may have happened had we not intervened. In some cases, the design may also allow us to make statements about why the rule has had certain effects or the mechanisms through which there has been an impact. However, if a market has experienced a range of external shocks, there have been multiple interventions or data has not been collected at implementation, it will be very difficult or impossible to establish the impact of a particular intervention (see the Annex for more discussion of challenges for impact evaluations and how we may address them).   

Impact evaluations are generally the most quantitative form of review but may draw on a variety of evidence, including qualitative tools. In conducting this form of review, we know that not all impacts may be easily quantifiable.  

These evaluations are a demanding form of review in terms of the data requirements and analytical resource. We can only undertake them when sufficient time has passed to observe the full effects of a rule. Undertaking impact evaluations requires us to use a significant amount of our resources and often to make ad hoc data requests from firms. We must consider value for money in our work and that data requests can create a cost for firms. We will undertake them only when it is proportionate to do so, for a subset of our interventions. We also consider the best ways to collect the information to undertake the evaluation and balance the rigour gained against the costs this would entail. 

As a guide, where we are planning to do an impact evaluation of a rule, we normally wait until about 3 to 5 years after implementing the rule. The exact timing will depend on various factors, such as the details of the rules, the relevant market and the scale of change. However, where there is a high cost associated with the rule or the rule is addressing a severe harm, we might review the rule sooner to ensure it has been implemented as planned and is addressing the harm. 

It is also important that we can ensure the robustness and credibility of our impact evaluations where we make claims about the specific impact of our interventions. We will do this by either commissioning them externally or, where carried out by our staff, ensuring they are peer reviewed by external experts. We expect to publish most, if not all, of our evaluations, so they will also be subject to external scrutiny. 

More information on our approach to impact evaluations is set out in the Annex. We invite feedback from stakeholders on the Annex.