Context
The FCA has published an introductory blog article, a news item, a web page introducing the proposed changes, and a Consultation Paper (CP26/23) on the scope and proportionality of Consumer Duty. These changes are primarily aimed at wholesale firms. This work is in line with the FCA’s 4-point plan (PDF) on addressing concerns about the Consumer Duty and wholesale markets.
This consultation is likely to interest regulated firms subject to the Duty and particularly those which:
- have a role early in the distribution chain, including those in the wholesale sector;
- work with other firms to manufacture a retail product or service;
- are part of a complex distribution chain; and
- conduct retail business for retail customers outside the UK.
Key points to note and next actions
The FCA is consulting on a targeted package of changes to its rules and non-Handbook guidance to:
- remove business with non-UK customers from the Duty’s scope;
- make it clearer where the Duty applies and where it does not;
- clarify when and how firms can rely on each other when they work together in distribution chains;
- how firms can apply the Duty more proportionately (but moving away from the concept of ‘material influence’, focussing more on the firm’s role and the extent of its involvement with a retail product or service); and
- explain the interaction between the Duty and other product governance rules (with a proposal to remove references to ‘co‑manufacturing’ from the Consumer Duty rules and guidance in PRIN 2A, introducing instead the concept of ‘principal’ and ‘secondary’ manufacturers).
The three substantial changes to make the Duty more precise, proportionate and workable in wholesale markets are:
- Clearer boundaries around what is out of scope, with case studies of what is not in scope in areas that participants have said are ‘grey’ (e.g., market making, custody, and safeguarding should not normally be caught). The FCA is clear that where firms do not genuinely shape consumer outcomes, the Duty does not apply.
- Clarifying accountability and responsibilities when firms work together, removing duplication, including across distribution chains and in the design of complex products.
- Removing business for genuinely non-UK customers from the Duty’s scope where there is no clear UK link or reasonable expectation of UK protection. It is appropriate for local distribution to comply with local rules. Therefore, business conducted for genuinely non-UK customers will generally fall outside the Duty, so the FCA is proposing to limit the application of the Duty to firms conducting retail market business where the retail customer is usually resident in the UK, based on the customer’s residential address or, where the customer is not an individual, the place of establishment. In general, the FCA is not, at this stage, proposing similar changes across the FCA Handbook where other rules apply to business outside the UK. However, it is consulting separately, in CP26/22 (see below), on changes to the scope of conduct rules in the insurance sector, where the FCA has observed particular issues. The FCA is, therefore, proposing that the application of the Duty to non‑investment insurance products would follow the approach set out in CP26/22. This would streamline the FCA’s proposed approach for firms in this market across the Duty, ICOBS and PROD 4.
The Consultation will be open until 18 September 2026.