A lot of changes, not a lot of change: The FCA's proposals to clarify the Consumer Duty

The UK Financial Conduct Authority (FCA) itself has acknowledged concerns about a lack of clarity and potential over-implementation of the Duty by firms. As a result, in September 2025, it committed to consulting on potential changes to its rules to clarify how and when the Duty applies.

Following that commitment, on 29 June 2026, the FCA published a long-awaited consultation paper, CP26/23 (the CP), setting out its proposals for clarifying the scope of the Duty in relation to wholesale firms with the aim of ensuring a more proportionate application. The consultation includes changes to both the FCA's Handbook rules and its related guidance in FG22/5 (the Non-Handbook Guidance). The Non-Handbook Guidance has frequently been used by the FCA to expand upon the basic rules and to provide worked examples of how the FCA considers that the Duty applies in practice. The consultation is open until 18 September 2026.

In this briefing, we highlight some of the key elements of the FCA's proposals and also give our views on whether they meet the regulator's objective of ensuring proportionate application of the Duty in the wholesale context and providing clarity for the industry. However, in short, given some of the commentary in the leadup to the publication of the consultation, many will have expected a material overhaul to how the Duty applies in wholesale markets. Except for a clear revision to territorial scope, the proposed changes will come as a disappointment to many, as they are mainly a suite of minor clarifications seeking to address specific points of over-implementation by some in the industry.

The summary table below provides an overview of the main changes, which we then discuss in more detail in the remainder of this briefing.

The FCA states that it expects to publish the corresponding policy statement and any new rules in Q1 2027. It is unclear whether those revised rules would take effect immediately or be subject to an implementation period. The FCA's proposals do not include any transitional provisions, which may reflect its view that the changes are for the most part intended to be either de-regulatory or clarificatory, but the FCA does appear to be live to the fact that certain transitions will need to be managed.

Probably the most significant element of the reforms is the proposal to limit the scope of the Duty to retail market business carried on in relation to retail customers who are "usually resident" in the UK (typically, as evidenced by the residential address the customer has provided, or an entity's establishment address). Subject to certain limited exceptions, this would mean that a firm would not need to apply the Duty's requirements to products or services to the extent that they are provided to non-UK customers.

Helpfully, the FCA appears to suggest that inadvertent isolated incidents of a product or service being distributed to a customer who is usually resident in the UK would not trigger the application of the Duty, but that the manufacturer would instead need to review its distribution strategy and determine whether it should be updated to mitigate the future risk of further distribution to UK resident retail investors. The distributor in such a case would then be responsible for reviewing the specific transaction to determine whether this has resulted in harm for the particular client and whether any mitigating action is required. (If the firm is both the manufacturer and the distributor, it would need to undertake both reviews.)

The activities

The Duty applies to "retail market business" as defined. The FCA is proposing to amend the existing definition of retail market business by specifying more clearly the types of activities that are caught. Under the revised rules, retail market business will include various activities carried on in relation to a product or service which is (or is intended to be) offered, provided or sold to retail customers. Those activities include manufacturing, distributing, price setting, communicating financial promotions and preparing product literature, as well as a residual "catch-all" reference to any other pre- or post-sale service or activity which is carried on in relation to the product or service (which would include, for example, general customer support, transaction processing, claims handling, product administration or complaints handling).

There is also a list of additional activities which form part of retail market business more generally, including approving any financial promotion which relates to retail market business and various consumer credit-related activities.

However, it will remain the case that to be within scope, the relevant retail market business activities above must "be or amount to" one of the following:

·       the carrying on of a regulated activity or an ancillary activity related to a regulated activity;

·       the provision of a payment service or the issuance of electronic money, or activities related to either of those activities; or

·       the approval or communication of a financial promotion relating to retail market business where the promotion in question is addressed to, or disseminated in such a way as to be likely to be received by, a retail customer.

The FCA's aim appears to be to specify a definitive list of retail market business activities that would bring a firm within scope of the Duty. Unfortunately, the catch-all reference at the end of the list to any pre- or post-sale service or activity carried on in relation to the product or service means that the scope is potentially extremely broad and therefore in itself is unlikely to give firms much comfort on this scoping issue.

Exclusions

Some new specific exclusions from the scope of retail market business are likely to be helpful, resolving some previous ambiguities about whether the Duty extended to custodians appointed by fund managers which have no interaction with retail clients or investors. There is also an exclusion for financial instruments where, broadly, manufacturers and distributors have taken reasonable steps to ensure the instrument does not fall into the hands of retail investors.

The endorsement of the non-retail financial instrument carve-out for investments with a minimum denomination or commitment amount of £50,000 per instrument is also likely to be welcomed and may finally put to bed concerns that the FCA might – as it once threatened – withdraw that exemption in the investment fund context. Firms will also welcome the confirmation that they will not be brought within scope of the Duty simply because another firm might incorporate their investment products into another product which is ultimately provided to a retail customer without their involvement.

In relation to payment services activities, the FCA is confirming that merchant acquiring activities will fall outside the scope of the Duty where neither the payer nor the payee is a retail customer. In addition, providing sponsored or indirect access to UK payment systems (e.g. BACS or FPS) is excluded from the Duty, as is the situation where a bank provides a safeguarding account to an authorised payment institution or an electronic money issuer, provided that, in each case, the sponsor/bank does not directly interact with or otherwise directly provide the service to a retail customer.

A new definition

Under the current rules, the concept of a distribution chain is essential in determining the scope of the Duty, as the current definition of "retail market business" requires a firm to be in a distribution chain. The FCA is proposing to turn this approach on its head by introducing a new definition of the concept of a "distribution chain" consisting of "firms that carry on one or more retail market business activities (see above) in relation to that product". The term distribution chain will then merely serve to define the scope of certain specific obligations rather than the overall scope of the Duty.

There is also a non-exhaustive list of examples of arrangements which (it appears, although the drafting is not entirely clear) may result in a firm being part of a distribution chain, including:

·       where a firm (Firm A) provides a service to another firm (Firm B) under an arrangement to enable Firm B to carry on its own activities in relation to a product or service;

·       an agreement under which two firms collaborate in relation to a product or service, such as a joint venture arrangement;

·       an outsourcing arrangement between one firm and another, where both firms carry on activities in relation to the product or service;

·       a commercial distribution agreement between a manufacturer and a distributor, or "any other commercial agreement" between two or more firms carrying on different activities in relation to the same product or service; or

·       providing or distributing a product directly to an end retail customer.

Lack of clarity as to what is, and what is not, a distribution chain

It appears to be the intention that, to be joined as part of a distribution chain with other firms, there must be some form of arrangement or agreement between the relevant firms. Beyond that, the concept continues to be poorly defined, not helped by the list of examples including "other commercial agreements" between firms which relate to a relevant product or service.

While it is true that the arrangement in question would need to relate to an activity which falls within the revised definition of "retail market business", as noted above, that includes any pre- or post-sale activity carried on in relation to the relevant product or service. Applied literally, that could potentially bring a wide range of third parties into a distribution chain (for example, in relation to back office functions or data recording services in relation to a transaction), subject to a separate analysis of whether the third party could exercise material influence (see below).

The FCA is proposing to add a new rule which states that a firm does not need to comply with a rule that forms part of any of the four Duty outcomes (i.e. products and services, price and value, consumer understanding or consumer support) if that obligation is not relevant to the firm's "proper role and activities" in relation to a product or service. The accompanying guidance gives three examples:

·       where another FCA authorised firm in a distribution chain is responsible for complying with the outcome rule in question;

·       where the firm is a manufacturer but has no role in devising the distribution strategy for a product, in which case it would not need to comply with obligations which relate to the selection of distribution channels; or

·       where the firm has no role or involvement in preparing or issuing any customer communications, it would not need to comply with the consumer understanding outcome rules.

On its face, this is a welcome addition, but in our view most firms would have already reached the same conclusion based on existing guidance which states that obligations on firms should be interpreted reasonably, in a manner that reflects the firm’s role and the degree to which it can determine or materially influence retail customer outcomes. Under the proposals, this guidance would, in broad terms, be restated as a rule (see material influence and proportionality, below).

Furthermore, the use of terms "proper role" and the phrase "no role" in the examples may mean that the change is not as generous as it may at first appear. Also, the FCA's proposed new rules would not switch off or cut back the Duty's cross-cutting obligations in relation to the product or service in question. The four customer outcomes of the Duty are expressed to help define what is required by the cross-cutting rules, but are not exhaustive of a firm's cross-cutting obligations. For clarity, it would seem desirable for the FCA to confirm that the cross-cutting obligations are also cut back correspondingly where an outcome rule is identified as irrelevant to the firm, so that they do not have the inadvertent effect of reintroducing the obligation through a different route.

No material influence

The FCA is adding a new rule which states that where a firm forms part of a distribution chain, the Duty does not apply if the firm can demonstrate that its role in relation to the relevant product or service is "so limited or remote that it cannot determine or materially influence outcomes for retail customers in connection with that product". The concept of material influence was previously referenced in guidance, but is now being elevated to a specific scoping rule.

Proportionality

The FCA is also adding an express overarching proportionality rule, which states that a firm's obligations under any particular element of the Duty must be interpreted in a manner that is commensurate with the firm's ability to determine the outcomes experienced by retail customers in relation to a product or service. This is supplemented by some new guidance provisions, but the change is unlikely to add much (if any) practical clarity over that provided by the existing guidance provisions which would be deleted.

Co-manufacturing

The FCA notes in the CP that industry participants have been seeking clarity over how to apply the concept of co-manufacturing where multiple firms are involved in the design or manufacture of a product or service. In response to that request and as part of its attempt to ensure the proportionate application of the Duty, the FCA is now introducing the concept of principal and secondary manufacturers in its revised rules. A "secondary manufacturer" is a manufacturer who lacks "substantive control" over the relevant product or service due to the nature and extent of its contribution to the manufacture of the product or service in question. A "principal manufacturer" is a manufacturer which is not a secondary manufacturer (and so, it follows, does have substantive control). This new framework would essentially replace the current concept of co-manufacturing. All manufacturers (both principal and secondary) would still need to have a written agreement or set of written agreements in place.

"Substantive control"

While the FCA is proposing a non-exhaustive list of factors that may indicate where a manufacturer has substantive control (and so would be a principal, rather than a secondary, manufacturer), it has declined to commit to a bright-line test, and having to conduct additional analysis on this point is unlikely to be welcomed by firms. Under the current drafting it appears possible that there might be more than one principal manufacturer.

Calibrated duties for a secondary manufacturer

The relevance of being a secondary manufacturer is that the obligations under the Duty's product and services and price and value outcomes are switched off, and instead the secondary manufacturer is required only to take reasonable care to:

·       consider the substance and impact of its contribution to the manufacture and pricing of the product or service, taking into account the contributions of any other manufacturers; and

·       ensure that its contribution does not create a material risk that the relevant product or service would cause foreseeable harm to retail customers in the target market, or would otherwise fail to meet the needs and objectives of those customers or fail to provide fair value to them.

It is not immediately clear that this is a helpful reform. Under the current rules, manufacturers who collaborate in the manufacture of a product are required to set out in a written agreement their respective roles and responsibilities in relation to the product approval process and the value assessment. The current framework already provides flexibility which allows a firm which is in practice the principal manufacturer to take the lead on meeting the Duty's requirements without the need for duplication of effort. It also introduces new terminology that is not used elsewhere – for instance, under the MiFID product governance rules in PROD 3 – which may be an additional source of confusion.

The FCA is proposing to update the Non-Handbook Guidance to clarify that a firm can reasonably rely on information provided by another firm in a distribution chain and on representations made by the firm in relation to any actions it has taken. This is subject to the firm's duty to act in good faith and not to rely on information or representations when it would be unreasonable in the relevant circumstances.

The FCA's existing rules contain a provision which, broadly speaking, states that the Duty does not apply where the activities in question are not covered by consumer protection rules in one of various FCA sectoral sourcebooks (such as COBS for investment business, ICOBS for insurance activities, MCOB for mortgage activities, etc.). The FCA notes in the CP that the drafting of this rule has created ambiguity about when the Duty applies and creates the risk that the Duty might inadvertently be disapplied as the FCA seeks to remove other provisions in the Handbook in the future which are duplicative or overlapping of the Duty's requirements. As a result, the FCA is now proposing to delete the relevant rule.

To the extent that firms have based their implementation of the Duty on arguments relating to the scope of other conduct of business and consumer protection rules, this would no longer be possible under the FCA's proposed revised rules. This could mean that in some marginal cases, the proposed reforms could potentially extend the application of the Duty.

Another aspect of the Duty that has proven controversial is its application to the process used by a firm to opt up a retail client to elective professional status. Under the original implementation of the Duty, the Non-Handbook Guidance was clear that, while the Duty does not apply to clients (or investors) who elect to be treated as professional clients under COBS, it nonetheless still applies to "the process a firm uses to determine a client's status" – i.e. the opt-up process.

The CP narrative suggests the scope of application of the Duty to the elective professional opt-up process will be confirmed in its responses to CP25/36 (which is expected later this year). Although the FCA's proposals would delete the existing wording on this point from the Non-Handbook Guidance, it therefore appears that this is not intended to reflect any settled position on this issue, but is merely an interim placeholder.

The FCA's consumer composite investments (CCI) regime is the UK successor regime to PRIIPs and the UCITS KIID. The CCI regime is currently in its transition period.

In response to firms querying the interaction and overlap between the CCI rules and the Duty in this context, the FCA is updating the Non-Handbook Guidance to state that where a firm's role is "limited to manufacturing" a retail product and it complies with the applicable CCI information requirements, this will be the "primary means" by which the firm can satisfy the consumer understanding outcome.

Again, the proposed approach in this area may be something of a disappointment to firms as the statement is heavily qualified and the CCI regime is in any event principles-based and incorporates a series of "Consumer Duty lite" obligations, including in relation to consumer understanding when preparing product materials.  In addition, the FCA is at pains to emphasise that the CCI regime is not exhaustive of the "full range of steps" that firms may need to take to meet the Duty's outcomes.

The FCA has sought to respond to concerns that Duty board reports are unduly onerous and take up a disproportionate amount of senior leadership time. However, the proposed changes are largely cosmetic and merely extend to providing a more explicit articulation of how the principle of proportionality applies to preparing the report and an acknowledgment that reporting need not be a standalone document and may be incorporated into other reporting.

The FCA is proposing to introduce a new section in the Non-Handbook Guidance on customer vulnerability and clarify how proportionality should be applied in the distribution chain. Essentially, the FCA suggests that manufacturers need to consider as part of their design processes whether there could be additional harm for customers with characteristics of vulnerability.

However, for simple products (the FCA gives the example of a tracker fund) which do not have a high concentration of potentially vulnerable groups within their target market, this might mean that manufacturers only need to ensure that disclosures support consumer understanding of the product and that there are processes in place to identify any issues that do arise.

Firms "closer to consumers" will need to do more by, for example, taking reasonable steps to ensure that individual customers are able to understand product features and by responding flexibly to their support needs. For many firms this would not result in a material change from how they are operating at present.

The proposals in CP26/23 seem to be a significant missed opportunity to provide genuine clarity and reduce unnecessary compliance burdens for firms carrying on predominantly wholesale business about when and how the Duty will apply to their activities. In announcing the consultation, the FCA stated that the aim was to "make the Duty more precise, proportionate and workable in wholesale markets". It is a laudable and important aim, but the current proposals fall a good way short of achieving that.

While the revisions to territorial scope will be welcomed by the industry, most of the rest of the changes are in practice drafting changes (and sometimes convoluted drafting changes) rather than substantive revisions to the regime. The proposed introduction of "principal" and "secondary" manufacturers is likely to go one step further and be outright detrimental to the FCA's stated aims.

While the FCA has asserted that many market participants, in some cases apparently encouraged by their advisors, have over-implemented the Duty, many firms, including those that have been well-advised, will conclude that their implementation was and remains consistent with FCA expectations which have not substantively changed.

There appears to be a certain defensiveness in the FCA's latest proposals, possibly driven by a perceived risk that providing clearer delineations about when and how the Duty applies in wholesale contexts might inadvertently scope out some cases which could eventually lead to some element of retail harm. Fundamentally, the underlying problem may be a political one: if the UK is serious about growth and competitiveness, then there needs to be a clearer agreement about the balance between consumer protection and streamlined regulation, giving the FCA appropriate political cover for bolder choices.

While simplification and clarity for wholesale firms was therefore the aim, there is a sense that in many cases the proposals adopt a conservative approach, continuing to rely on firms to make difficult judgements in the context of rules that will arguably be as nebulous and no less complicated than today.