FCA consultation: Consumer Duty to be less burdensome, clearer and more proportionate for wholesale firms?

As part of the FCA's 5-year strategy – to be a smarter regulator, support growth, help consumers and fight crime – as well as an ongoing review of the Consumer Duty, the FCA is now proposing to amend the Consumer Duty to give firms greater confidence in its scope, and reduce unnecessary cost and complexity while maintaining proportionate protections for retail customers. 

The consultation paper (CP26/23) was published on 29 June 2026 and firms have until 18 September 2026 to respond; with a policy statement and new rules in Q1 2027.

 

Why is the FCA proposing changes?

The Consumer Duty sets high standards for consumer protection and has had far-reaching impact on all areas of a firm's dealings with consumers – whether a firm engaged with consumers directly or indirectly, eg when manufacturing retail products.

Much of the wholesale market does not have a material impact on retail outcomes and so fall outside the scope of the Consumer Duty. However, the FCA has seen wholesale firms apply the Duty in a wider and more extensive way than the FCA had intended. The FCA is consulting on changes to make the Duty "more precise, proportionate and workable in wholesale markets" (Simon Walls, Executive director of markets, FCA).

The FCA is also focused on reducing burdens for firms, where proportionate. In addition to seeking feedback on its proposed changes, the FCA is also specifically seeking views on where firms consider the Duty is currently being applied more widely than intended.

This article sets out some of the key changes below.

 

Clarifying the scope of the Consumer Duty

The FCA aims to more clearly define activities within the Duty’s scope and to bring more certainty for firms. 

The proposals include updates to the definitions of core concepts such as "retail market business", "products" and "services" subject to the duty, and "distribution chain". The amendments seek to simplify these definitions to make it easier for firms to apply. 

For example, the FCA is proposing to:

• clarify that "retail market business" (within the scope of the Consumer Duty) will apply to the following activities relating to retail products or services:
  • manufacturing or distributing
  • price setting
  • preparing or communicating information, including promotions
  • providing pre-or post-sale consumer support

The FCA is also proposing to amend the scope of the Duty to be clearer about when it applies and when it does not by, for example:

• clarifying that firms do not need to comply with rules under one or more of the four consumer outcomes if they do not conduct that particular role, process or step that is subject of those rules;
• moving away from the concept of "material influence" (as a gateway to Consumer Duty scope) and focus more on the firm's role and the extent of its involvement with a retail product or service; and
• removing from term "co-manufacturing" from its rules and guidance. Firms would either be a principal manufacturer – the firm with the power, right or ability to make decisions about core aspects of a product’s design, operation, distribution strategy, or value proposition for end retail customers ("substantive control") – or a secondary manufacturer. More detailed obligations would apply to the principal manufacturer.

Territorial scope – firms with customers outside the UK

The FCA plans to limit the application of the Duty to firms conducting retail market business where the customer is in the UK. The scope will be based on the customer’s residential address or, where the customer is not an individual, the place of establishment.

Additional exclusions from the scope of the Consumer Duty

The FCA is proposing to broaden the list of activities that would be excluded from the scope of the Consumer Duty:

• In the payments sector:
  • Merchant acquiring;
  • Providing another firm sponsored across to the UK interbank retail payment systems;
• Market making in wholesale financial markets;
• Product providers whose products are independently incorporated into retail products or which have been supplied to a product manufacturer on general commercial terms with tailoring to the retail product or service;
• Provision of ESG ratings;
• Safeguarding of funds for payment services or e-money activity;
• Acting as a third party custodian where the custodian does not have a relationship with the underlying client;
• Acting as a depositary to a fund; and
• Supporting defined benefit pension scheme trustees with respect to scheme members.

However, it should be noted that the FCA is also proposing to amend the existing exclusion designed for wholesale business (GBP50,000 minimum investment exclusion) to clarify that the threshold applies per investment and per end investor and cannot be used where individual investments are aggregated, eg on a platform.

 

Aiming for a more proportionate application of the Consumer Duty

The FCA is proposing changes to help firms apply to the Consumer Duty in a more proportionate way.

Distribution chains

The FCA is proposing certain clarifications aimed at reducing burden in a distribution chain to:

• make clear 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, unless other regulation or contracts require this;
• clarify that firms can take a proportionate approach to due diligence they carry out when deciding whether to work with another firm in a distribution chain;
• allow firms who depend on information provided by, or actions carried out by, another firm in the distribution chain, to rely on that information and on representations made by that other firm about the actions it has taken. However, firms are expected to act in good faith and not rely on information in circumstances what would be unreasonable. The FCA will include examples to examples to illustrate how this may work in practice;
• clarify that firms should only notify the FCA about "material" concerns about the conduct of another firm. A firm would also be able to raise an issue with another firm to seek clarification or comfort before notifying the FCA;
• provide guidance to clarify that firms may act differently to support customers in vulnerable circumstances depending on their role in the distribution chain etc. For example, the FCA consider that manufacturers (who are further removed from end customers) should consider risks arising from their own activities such as product design, target market assessments and distribution arrangements; whereas distributors (who are closer to the consumer) have more direct responsibilities for identifying and responding appropriately to customer needs, including needs arising from vulnerabilities; and
• provide additional guidance on what the FCA considers to be examples of reasonable approach to information gathering in different circumstances. The FCA is planning additional work to assess how information gathering and sharing is working in practice and whether it is leading to positive benefits for the consumer.

Board and governance reporting

The FCA confirmed that it was never its intention for Consumer Duty related board reporting to be onerous or to take up a disproportionate amount of boards' time and have proposed additional guidance to support firms in taking a proportionate approach by clarifying that:

• firms do not need to produce a stand‑alone Consumer Duty board report – it can be incorporated into other board reporting and governance structures to avoid duplication;
• board reporting should focus on the key insights, actions and risks relevant to the firm’s activities – taking into account the extent of the board's retail market business, role in the distribution chain, size and capabilities and risk of harm to consumers;
• a more streamlined assessment focused on the impact of the firm's role and activities on consumer outcomes is expected for firms with more limited roles in affecting consumer outcomes; and
• firms do not need to cover Consumer Duty obligations that are not relevant to their role in a distribution chain.

However, the FCA will continue to expect firms to demonstrate how their governance supports good outcomes for retail customers where the Duty applies.

For more information, please contact the authors or your usual DLA Piper contact.