The regulator is proposing amendments with a view to making the application of the regime to firms primarily engaged in wholesale activity clearer and less burdensome.

By Nicola Higgs, Becky Critchley, Ella McGinn, and Charlotte Collins

Key Points:

  • The FCA has set out detailed proposals to refine the Consumer Duty, in line with its previously announced commitment to clarify the application of the Duty to wholesale firms.
  • Proposals include clarifying the scope, clarifying firms’ roles and responsibilities within distribution chains, and narrowing the territorial scope so that the Duty applies only when the customer is usually resident in the UK.
  • Comments are requested by 18 September 2026, with final rules expected early next year.

Background

On 29 June 2026, the FCA published a Consultation Paper (CP26/23) on scope and proportionality under the Consumer Duty.

The Consumer Duty began to take effect in July 2023, and the FCA emphasised at the time that it expected implementation to result in a shift in firms’ mindsets. These high expectations led to many firms undertaking detailed implementation projects. However, the exact scope of the Duty has not always been clear. Although the Duty is designed to apply only to products and services offered to retail customers, it applies when a firm in the distribution chain can determine or materially influence aspects of the design, target market, or performance of a retail product or service that is itself within the scope of the Duty, even when that firm does not have a direct relationship with the retail customer. Consequently, many wholesale firms still felt the need to implement Consumer Duty frameworks.

Conscious of the compliance burden on wholesale firms, the Chancellor stated in her July 2025 Mansion House speech that she had asked the FCA to address concerns about the application of the Consumer Duty for firms primarily engaged in wholesale activity. In response, the FCA set out a four-point action plan in September 2025, noting “We know that some firms have taken steps to comply with the Duty which were driven by uncertainty about our expectations and concern about the consequences of getting it wrong … While many firms have struck an appropriate balance, these factors have led some to go further than we wanted, increasing their compliance costs unnecessarily”.

The present consultation takes forward two of the FCA’s action points: consulting on changes to rules on the application and requirements of the Duty, including through distribution chains, and removing business with non-UK customers from the scope of the Duty.

Proposed Changes to the Duty

The FCA’s proposals focus on three key areas, as described further below.

Clarifying Scope

The FCA is proposing a number of clarifications to the scope of the Duty, with the aim of increasing certainty for firms.

Application Provisions

First, the FCA is proposing to make the application provisions clearer by putting them all in one place under a new PRIN 3A. It also intends to clarify a number of key concepts relating to the application of the Duty. As part of this, the FCA plans to move the definition of “retail market business” from the Glossary into the main body of the Handbook to allow the FCA to set out the definition in more detail. The recast definition is intended to explain that activities such as manufacturing, distribution, setting prices, preparing or communicating information, and providing customer support would be included. Further, the FCA is proposing to simplify the definition of “product” to remove the references to who it is being provided to (on the basis that this is dealt with elsewhere in PRIN 3A). It is also proposing to move away from the concept of “material influence” and focus more on a firm’s role and the extent of its involvement with a retail product or service.

Linked to this, the FCA is proposing to delete PRIN 3.2.8R, which ties the application of the Duty to the scope of sector-specific conduct rules, as it considers this may create uncertainty as and when sectoral rules are amended or deleted (particularly given the current push to streamline retail conduct rules), and rely instead on the provisions of the Duty where possible.

Distribution Chains

Another element the FCA is seeking to clarify is which arrangements would bring a firm into a distribution chain for the purposes of the Duty. It provides some practical examples of relevant arrangements, such as “an agreement where firm A and firm B collaborate in relation to the product – for example, under a joint venture”, and explains that there may be multiple manufacturers/distributors, or a firm may take on more than one role in relation to a product. The FCA also intends to clarify that firms do not need to comply with rules under all four of the Duty’s outcomes if their role does not involve activities relevant to that outcome. For example, if a firm does not play a role in customer communications it would not need to comply with requirements relating to the customer understanding outcome. This aligns with pre-existing guidance for co-manufacturers under the FCA’s product governance rules, so confirmation of this guidance in the context of the Duty would be helpful to firms.

The FCA is looking to bring aspects of its December 2025 statement (on its expectations when firms work together to manufacture a retail product or service) into the rules. In particular, it plans to remove references to “co-manufacturing”, stating that this term can cause confusion, and replace it with the concept of principal and secondary manufacturers. The firm with “substantive control” over the design or operation of the product or service would be the principal manufacturer; other firms involved would be secondary manufacturers. In effect, the changes would transfer more of the compliance burden onto the principal firm, while secondary manufacturers would be subject to less stringent obligations. Arguably, this could introduce more complexity to the rules, and result in material repapering exercises as firms set out to re-document their relationships and responsibilities.

Exclusions

The FCA is seeking to add new explicit exclusions from the Duty. It plans to exclude activities such as merchant acquiring, market making, the provision of ESG ratings, acting as an indirect access provider, and the provision of derivatives and other products used in a third party’s retail product or service. Further, safeguarding of funds for payment services or e-money activity, acting as a third-party custodian, acting as a depositary, and supporting defined benefit pension schemes would all be excluded from the Duty when firms do not engage directly with retail customers in performing the relevant activity.

Aligned with the above changes, the FCA plans to restate the exclusion for certain activities linked to financial instruments designed primarily for wholesale investors (i.e., for financial instruments where the minimum investment is £50,000), to clarify that this exclusion cannot be relied upon where investments are aggregated to reach the £50,000 threshold.

Interaction With Other Requirements for Retail Investment Products

The FCA also intends to clarify how Consumer Duty expectations interact with product governance requirements in PROD 3 and disclosure requirements under the Consumer Composite Investments regime. Given the complexity and areas of overlap, the FCA intends to explain the relationship in its guidance, but is not proposing rule changes at this stage, although it is inviting feedback on whether product governance requirements could be amended in future to rely more on the Duty. It is proposing to include a helpful example in its guidance on how the Duty applies to an investment bank manufacturing retail structured products for distribution by third parties.

Clarifying Accountability

The FCA aims to adapt its rules to ensure that firms operating within distribution chains can apply them in a reasonable and proportionate way, touching on several aspects of the Duty.

Responsibilities Across Distribution Chains

The FCA reports that firms have raised particular concerns about their role in distribution chains, most notably that they end up taking responsibility for, or overseeing, other firms’ activities. The FCA therefore proposes to clarify that firms are only responsible for ensuring compliance in respect of their own role and activities, and are not expected or required to oversee the compliance of other firms in their distribution chain. It also proposes amendments to its guidance to emphasise that firms can take a proportionate approach to due diligence on partner firms. Further, it proposes to make clear that firms can rely on information provided by, or actions carried out by, another firm in the distribution chain.

However, the FCA emphasises that firms would not be able to rely on information where it would be unreasonable in the circumstances, such as where contradictory information comes to light. That said, the regulator does not expect to be notified of every concern — it proposes new guidance to the effect that firms should ordinarily discuss concerns amongst themselves as a first step and that firms should only notify it of material issues. The FCA intends to add some practical examples to the Handbook to illustrate how reasonable reliance is intended to operate in practice, as well as adding a new chapter in its non-Handbook guidance on roles and responsibilities in distribution chains.

Vulnerable Customers

The FCA states that firms have raised concerns that the Duty does not prescribe how responsibilities for identifying and responding to customer vulnerability should be allocated across the distribution chain. Consequently, the FCA is proposing new guidance to emphasise that firms may act differently to support customers in vulnerable circumstances, depending on their role in the distribution chain, their activities, and the risk of harm to consumers. Firms with the closest proximity to customers would therefore have more direct responsibilities. The FCA explains that manufacturers of products unlikely to have features that present additional risks of harm to vulnerable consumers may be able to take a more light-touch and risk-based approach.

Obtaining Information

A further concern raised by firms is that information gathering and sharing across distribution chains can be challenging. The FCA is therefore proposing a new rule to support a more balanced approach and allow firms to focus on gathering the most useful information. This approach is centred around what is proportionate based on a firm’s role and activities in the distribution chain. It would emphasise that firms should focus on gathering the most useful, targeted information to help them understand consumer outcomes, and are not expected to gather data that does not further this goal. The FCA may also consider sharing information on good practices in future to help firms calibrate their approach.

Board Reports

The FCA highlights that some firms feel board-level reporting is overly process-driven, resulting in lengthy board packs containing duplicative information. Firms have certainly struggled to understand FCA expectations in terms of the annual board reports. Consequently, the FCA plans to clarify that the extent of a firm’s reporting should be proportionate to its role and activities in the distribution chain, and that firms do not need to produce a standalone Consumer Duty board report if the information is covered elsewhere. This would allow firms with a more limited role to prepare a more streamlined and targeted report and permit them to incorporate Consumer Duty reporting into other board reporting processes. However, the FCA highlights that it still expects firms to carry out Consumer Duty board reporting at least annually, to maintain effective oversight. Given an ongoing expectation of supervisory requests to demonstrate good board oversight of consumer outcomes, firms may wish to consider whether this proposed flexibility from the FCA outweighs the benefit of keeping standalone Consumer Duty reports that can easily be shared with the supervision team.

Narrowing Territorial Scope

The FCA is proposing to limit the application of the Duty to firms conducting retail market business when the customer is usually resident in the UK, subject to some minor exceptions. At present, the Duty applies in situations where the relevant sectoral conduct of business rules apply. Therefore, it does not always apply to business with customers outside the UK.

Under the FCA’s proposals, the Duty would not apply when a firm is conducting business exclusively for customers outside the UK (based on their residential address). If products are intended for sale to UK and non-UK customers, firms would only need to comply with the Duty in relation to customers in the UK. However, firms would be able to choose to apply the Duty more broadly across their customer base if they preferred to do so. The FCA proposes that the Duty would still apply to UK pre-paid funeral plans and activities relating to UK pensions, even if the customer is not usually resident in the UK. This is on the basis that such products have a clear UK connection that may create an expectation of protection under the UK regulatory regime.

The FCA explains that, if products are distributed in the UK that have not been designed in line with Consumer Duty standards, firms would need to review their distribution strategy to ensure such products are not distributed to UK customers in future. Further, distributors must review any transactions for potential harm under the Consumer Duty cross-cutting rules.

In addition to the key changes outlined above, the FCA is proposing to amend outdated references to Consumer Duty Board Champions in Finalised Guidance FG22/5, in light of the FCA having removed its expectation for firms to have a Board Champion back in February 2025. It is also proposing some minor revisions to its rules and guidance to tighten the wording in places and improve current drafting. However, these changes are not intended to impact the application of the rules.

Next Steps

The consultation closes on 18 September 2026. The FCA plans to publish a Policy Statement in Q1 2027.

Overall, the consultation represents a welcome step towards reducing the compliance burden for firms primarily engaged in wholesale activity. However, even with the proposed clarifications to scope, the application of the Duty would remain complex and fact-specific, meaning that firms may not find compliance to be significantly easier in practice. Some of the proposals also have the potential to create additional complexity; for example, the move to designate firms as principal and secondary manufacturers.

Firms should also be mindful that, while the FCA is seeking to reduce unnecessary burdens, it continues to expect meaningful engagement with the Duty’s core objectives. This initiative is not intended to be a “watering down” of the Duty, and the regulator has confirmed that it will continue to hold firms to account for delivering good outcomes for retail customers.