In 2023, the FCA implemented the Consumer Duty – that is, a high level principle in its rulebook, under which regulated firms must “act to deliver good outcomes” for retail customers.  This principle is supported by detailed rules and FCA guidance, which require regulated firms to consider a number of specific outcomes for retail customers: that products and services for retail customers are designed appropriately; that its products provide fair value; that firms support customer understanding; and that firms provide customer support.  

The initiative was introduced with great fanfare, and regulated firms have expended a considerable amount of time and resource in getting to grips with the FCA’s requirements. 

The initiative was so broad in its scope that it potentially covered any regulated firm whose activities could affect the outcomes for retail customers, even if only indirectly.  Despite the publication of detailed rules and FCA guidance, many questions still remained unanswered – including, in particular, how the Consumer Duty applied to firms primarily engaged in wholesale activity.

The CP now seeks to resolve some of the unanswered questions.  The FCA also says that the CP is intended to (i) support a more proportionate approach focused on the particular role and activities a firm has in the distribution chain, and (ii) reduce unnecessary cost and complexity, while maintaining robust protection for retail customers where there are risks of harm.

The changes that the FCA proposes under the CP are as follows:

Whether the Consumer Duty currently applies to a firm when it is dealing with customers outside the UK depends on the nature of the activity.  There are some activities where a UK firm dealing with an overseas customer still has to comply with the Consumer Duty.

The FCA is now proposing that the Consumer Duty will only apply to 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).

Where products or services will be intended both for sale to customers in the UK and outside the UK, the firm will only have to comply with Consumer Duty requirements in relation to customers usually resident in the UK.  UK firms may, however, still choose to apply Consumer Duty processes more broadly.

The FCA also proposes that where a firm finds that products or services not intended for retail customers in the UK have been distributed in the UK, it will have to review and potentially amend its distribution strategy to try to prevent future UK sales. In addition, a distributor that becomes aware it has distributed a product not intended for UK distribution to customers in the UK, will have to review the transactions under the cross-cutting rules and take appropriate steps to mitigate any identified harm and prevent any further harm.

The CP also sets out some specific scenarios where the Duty would continue to apply to business involving customers who are usually resident outside of the UK, namely business relating to: crown servants posted overseas (e.g. armed forces personnel and civil servants), pre-paid UK funeral plans, and regulated or ancillary activities concerning UK pensions.

Clarifications to scope:  The FCA proposes to make a number of clarifications regarding the scope of the rules – for example to make clear what counts as “retail market business”, which specific products are subject to the Consumer Duty and to define other terms such as “distribution chain” and “material influence”. 

Co-manufacturers: 

• Where firms work together to manufacture products, the rules require them to enter into written agreements to document their roles and responsibilities. 
• The FCA is now proposing to amend the rules to remove the concept of “co-manufacturing” and instead introduce concepts of “principal manufacturer” (the person who has substantive control over the design or operation of the product or service) and “secondary manufacturer”.  The responsibility to document the roles and responsibilities will sit with the principal manufacturer and the secondary manufacturer will be subject to fewer obligations. 
• The FCA says that where a firm outsources manufacturing activities, it would in most cases expect the firm doing the outsourcing to be the only manufacturer, or the principal manufacturer.
• The FCA also recognises that the new rules may require firms to re-document existing arrangements, and says that it may consider allowing a longer implementation period.

Provision of derivatives: The FCA proposes to introduce an exclusion to clarify that a firm would not be conducting retail market business when its role is limited to providing certain products or services that act as components in a third-party’s retail product or service. 

Defined benefit pension schemes:  Where a firm provides services within arrangements determined by the pension scheme trustees, and does not deal directly with underlying scheme members who are retail customers, the firm will not be within the scope of the Consumer Duty (unless the trustees have themselves been categorised as retail customers).

Other exclusions:

• The FCA proposes to clarify that a number of activities will fall outside the scope of the Consumer Duty – including: merchant acquiring (unless the merchant client meets the definition of a retail customer for the payments sector), market making, provision of ESG ratings, and acting as an indirect access provider to the UK interbank retail payment systems (e.g. BACS and the Faster Payment Service). 
• In addition, the following activities will be outside the scope of the Consumer Duty if the firm does not engage directly with retail customers in relation to the activity: safeguarding of funds for payment service or e-money activity, acting as a third-party custodian or acting as a depositary.  In addition, the Consumer Duty will not apply to the Society of Lloyd’s – although it can apply to managing agents conducting business for retail customers.

Oversight:  The FCA proposes 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. 

Reliance: Where a firm’s compliance with the Consumer Duty depends on information provided by, or actions carried out by, another firm in the distribution chain, the firm may reasonably rely on that information and on representations made by that other firm about the actions it has taken.  However, firms will be expected to act in good faith and not rely on information where it is unreasonable to do so.

Customer vulnerability: The FCA proposes clarifications to its rules and guidance to reflect 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.  This could include distributors, who are closer to the customer, having more direct responsibilities to respond appropriately to customers’ needs.

Obtaining information from other firms to meet obligations under the Consumer Duty:  The FCA proposes to introduce a rule to support firms in taking a more proportionate and practical approach when gathering and sharing information with other firms in a distribution chain – to help firms focus on gathering information that is genuinely useful for assessing customer outcomes.  There will also be additional guidance from the FCA regarding the taking of an appropriate response.

Board reporting:  In response to concerns that the Consumer Duty rules have led to overly detailed, process-driven board reporting, the FCA proposes to make targeted amendments to the rules to clarify that the extent of a firm’s reporting is to be commensurate with their role and activities in the distribution chain, and that they do not need to produce a stand-alone Consumer Duty board report.  There will also be additional guidance for boards.

The FCA acknowledges that the way that the Consumer Duty currently interacts with other product governance rules – such as  PROD 3 in the FCA Handbook and the disclosure requirements under the Consumer Composite Investments (CCI) regime - can be difficult to navigate and may have contributed to firms taking overly cautious or duplicative approaches. 

The FCA proposes to make targeted updates to its guidance to assist firms, including clarifying the application of the Consumer Duty to wholesale markets, and clarifying how the Consumer Duty’s price and value outcome interacts with PROD 3. 

Wholesale firms had told the FCA that the Consumer Duty’s consumer understanding outcome overlapped with the disclosure regimes such as the CCI regime, and had asked for greater clarity on what additional steps they need to take to demonstrate compliance.  The FCA proposes to update its guidance to clarify that, where a firm’s role is limited to the manufacture of a retail product or service and it complies with applicable disclosure requirements (such as the CCI regime), this will generally be the primary means by which it supports the consumer understanding outcome.  One of the themes of the CP is that firms should focus only on the activities or factors within their control.

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Comments on the proposals are requested by 18 September 2026.  The FCA expects to publish a policy statement and to make any new rules in Q1 2027. 

The FCA’s emphasis in its proposals on clearer boundaries and a more proportionate approach to application of the Consumer Duty – e.g. clarification that activities such as market making, custody, safeguarding and merchant acquiring should not normally be caught - is likely to be welcomed by in-scope firms, especially (as intended by the FCA) wholesale firms involved in retail markets.

There will be some initial work for firms in reviewing and assessing the potential impact of the proposed changes.  Some firms may then also look to adjust their current approach in light of the FCA’s final revised rules and guidance, e.g. to take advantage of the revised position on non-UK customers.  However, going forwards, the overall picture is likely to be one of lower compliance costs where the changes apply (depending on the specifics of a firm’s business).

If you would like to discuss how our combined legal and consulting teams can help you in assessing the potential impact of the FCA's Consumer Duty proposals on your business, please reach out to any of the people listed in this article or your usual Hogan Lovells Cadwalader contact.

Authored by Michael Thomas, Jonathan Chertkow, James Black, Anahita Patwardhan, Charles Elliot and Mark Aengenheister.