Consumer Duty: FCA consults on clarifications to scope and proportionality

Quick read

The FCA has published a consultation paper (CP26/23) on targeted changes to the scope and proportionality of the Consumer Duty, to clarify its application in wholesale markets. 

Industry and the government have previously expressed concerns that the Consumer Duty has had a disproportionate impact on wholesale firms, creating friction and uncertainty in some cases. As part of its response to a request from the Chancellor (see our previous blog post), the FCA committed in September 2025 to an action plan that included consulting on potential changes to the Consumer Duty during the first half of 2026, to seek to address the identified issues. CP26/23 is therefore the culmination of a period of FCA activity and extensive engagement with industry.

The overall aim of CP26/23 is to clarify the scope and application of the Consumer Duty to ensure firms better understand how it applies, reduce uncertainty, support effective functioning of wholesale markets (including firms’ willingness to participate and compete internationally), and maintain appropriate retail customer protections. The FCA proposes to achieve this through a mix of:

• narrowing territorial scope;
• clarifying boundaries around in- and out-of-scope activities;
• clarifying firms' accountability across the distribution chain and how they can apply the Consumer Duty more proportionately; 
• making technical clarifications and corrections, to better reflect the original policy intent; and 
• updating non-Handbook guidance for firms on the Consumer Duty (FG22/5), including incorporating worked illustrative examples (once finalised, the updated non-Handbook guidance will replace FG22/5).

In our blog post, we briefly outline the key proposals in CP26/23 and highlight some of the identified changes to the current position for wholesale firms if the FCA takes forward its proposed approach following the consultation process. We also comment on the Supervision and Enforcement perspectives.

• The Consumer Duty will not apply to a firm conducting business wholly for customers outside the UK. Retail customers are determined to be outside of the UK based on their residential address or (for non-individuals) place of establishment.
• Where products or services are intended both for sale to customers inside and outside the UK, firms must only comply with Consumer Duty requirements in relation to customers usually resident in the UK (although they may choose to apply Consumer Duty processes more broadly).

The FCA proposes to move the definition from the Glossary into rules and more clearly set out the in-scope activities to include:

• activities relating to:
  • manufacture/distribution;
  • price-setting; preparing/communicating information and promotions; and
  • pre- and post-sale consumer support; and
• certain specified connected activities (e.g. approving financial promotions; credit references/debt collection) even where no "product" is provided directly to the retail customer.

The FCA proposes to remove references to 'co-manufacturing’ from the Consumer Duty rules and guidance. Instead, where a product’s distribution chain contains more than one manufacturer, each manufacturer would be either a principal or secondary manufacturer, as follows:

• firms with substantive control over the design or operation of the product (indicative factors to determine this are set out in the proposed rules) would be classed as the principal manufacturer, which must ensure that the contribution of all manufacturers to the product is set out in a written agreement outlining their respective roles and responsibilities under the relevant Consumer Duty rules; and
• other firms would be classed as secondary manufacturers and not subject to all the rules under the products and services outcome or the price and value outcome (instead, more limited obligations would apply).

Proposed new, additional exclusions include (among others):

• merchant acquiring (generally outside scope unless the merchant is a "retail customer" in the payments sector);
• market making;
• provision of ESG ratings;
• indirect access providers to interbank payment systems;
• certain derivatives/components supplied on general terms or independently incorporated into retail products;
• safeguarding accounts for payment institutions and e-money institutions; third-party custodians (with a carve-in if directly engaging with retail customers);
• depositaries (generally excluded but with specific carve-ins);
• services to DB pension trustees (with a carve-in where trustees are retail customers); and
• the Society of Lloyd's (the Consumer Duty applies to managing agents dealing with retail customers, not Lloyd's itself).

A new rule to support a more proportionate and practical approach to information gathering/sharing, focused on information that is genuinely useful. The FCA proposes to add to its non-Handbook guidance to clarify that:

• firms should focus on useful, reasonably accessible information;
• firms are not expected to collect data that does not meaningfully help;
• firms do not need to gather more data where existing sources suffice;
• monitoring should focus on themes and trends at target market level rather than individual customers;
• risk-based tailoring and qualitative/targeted monitoring where appropriate are acceptable; and
• industry templates can help standardise information sharing.

The FCA recognises there are areas of interaction between PROD 3 and the price and value outcome under the Consumer Duty, but it considers the overall framework remains appropriate. However, to limit complexity/duplication, the FCA proposes targeted updates to non-Handbook guidance to help firms understand how the regimes interact. This would include clarifying:

• the application of the Consumer Duty to wholesale markets, supported by an illustrative example; and
• how the Consumer Duty’s price and value outcome interacts with PROD 3, including how firms may rely on existing PROD 3 arrangements to support them in meeting the price and value outcome.

The FCA is not currently proposing any rule changes to streamline or disapply elements of PROD 3.

To support more consistent application, the FCA proposes to:

• update its non-Handbook guidance to clarify that, where a firm’s role is limited to the manufacturing 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 (although the Consumer Duty requirements remain broader than the disclosure requirements); and
• clarify that firms should not assume they are required to take additional or duplicative steps solely because they are subject to both regimes.