FCA proposes more proportionate Consumer Duty rules

What does this mean?

The FCA is responding to industry concerns that the Consumer Duty has, in some areas, been applied more widely and more intensively than intended. This is particularly relevant for wholesale firms, firms operating early in distribution chains, manufacturers with indirect links to retail customers, and internationally active firms. The consultation also follows a request by the Chancellor that the FCA address these concerns for firms primarily engaged in wholesale activity. 

The regulator is clear that the Duty remains central to its approach to retail markets, but it wants firms to have greater confidence about when the Duty does and does not apply.

Application of Consumer Duty to non-UK customers 

The most significant proposal is to limit the Duty to retail market business where the retail customer is usually resident in the UK, subject to specific exceptions. Where products or services are sold to both UK and non-UK customers, firms would only need to comply with Duty requirements in relation to customers usually resident in the UK. The FCA says firms may choose to apply Duty processes more broadly, but they would not be required to design products around non-UK customer characteristics, test non-UK customers’ understanding, or monitor outcomes for non-UK customers.

For non-investment insurance, the FCA proposes a slightly different approach. The Duty would not apply where both the customer’s habitual residence and the state of the insured risk are outside the UK. This reflects the way insurance markets operate, where the location of the insured property or risk can be as important as the customer’s residence. The FCA provides more detail on this in CP26/22, a separate consultation paper on further simplifications to insurance rules.

Activities subject to the duty

The FCA is also consulting on clarifying which activities are subject to the Consumer Duty, particularly where firms sit in complex distribution chains or have a more indirect relationship with the end retail customer. The FCA proposes to bring the Duty’s application rules together into a new PRIN 3A chapter, making the scope of the regime easier to navigate.

The FCA is retaining the concept of “material influence” but is proposing to make it easier for firms to apply in practice. The consultation confirms the Duty should not apply where a firm’s role is too limited or remote to determine or influence retail customer outcomes.

Firms should focus on the activities they actually perform and the extent to which they can influence retail customer outcomes. A firm may not be responsible for every Consumer Duty outcome if it does not carry out the relevant activity.

In practice, a firm would only need to comply with the Duty requirements that are relevant to its role and to the outcomes it can materially influence. For example, a firm involved in product design may need to consider the products and services outcome and price and value outcome, but would not usually need to meet consumer understanding obligations if it has no role in preparing, approving or communicating information to customers.

The FCA also proposes to clarify manufacturer responsibilities by replacing the concept of “co-manufacturing” with principal and secondary manufacturers. Principal manufacturers would have substantive control over product design or operation, while secondary manufacturers would have more limited obligations linked to their specific contribution.

This should help firms take a more proportionate view of their role, especially where they provide components, services or inputs into wider retail products without controlling the overall customer proposition. The FCA notes firms subject to PROD 4 are not expected to be impacted by these proposed changes to the concept of co-manufacturers. 

Firms should also consider the FCA’s proposed exclusions for certain activities - including merchant acquiring, provision of ESG ratings and market making - from the scope of the Duty. The FCA states that other clarifications in the consultation may also mean that further activities fall outside the Duty’s scope.

Applying the Duty in a more proportionate way

The consultation also addresses concerns that some firms have undertaken unnecessary activities by checking or repeating work that is the responsibility of others in the distribution chain.

The FCA makes clear that firms are responsible for their own role and activities. They may be able to rely reasonably on information or actions from other firms, provided there are no clear warning signs of consumer harm. This should support more targeted information-sharing and reduce blanket data requests, duplicated reviews and defensive governance. The FCA notes this is subject to other existing regulatory requirements, for example insurers would still have to follow PROD 4 rules on such matters. 

The FCA also clarifies expectations on vulnerability, outcomes monitoring and board reporting. It says that firms closer to the customer will generally be better placed to identify individual vulnerabilities and provide tailored support. Firms further up the chain should focus on product design, target market, distribution strategy and the risks they can reasonably influence.

For MI and board reporting, the FCA is signalling that more process does not necessarily mean better compliance. Reporting should be focused on material risks, relevant outcome trends and actions taken, rather than broad or repetitive compliance exercises.

What do firms need to do?

The changes in the consultation will not require significant changes to Consumer Duty frameworks. However, the changes represent an opportunity to simplify and optimise operating models.

Of immediate focus, firms operating internationally should ensure they have reliable mechanisms to identify UK residence or, for insurance, UK habitual residence and UK risk location. Firms should then ensure they have systems in place so that products of non-UK based customers need not go through unnecessary Consumer Duty processes.

Second, firms should review distribution-chain arrangements. Manufacturers and distributors should be clear on who owns which outcomes, what information is genuinely needed, when reliance on another firm is reasonable, and what escalation routes apply if harm is identified.

Third, firms should revisit governance and MI. The FCA is signalling that more process does not necessarily mean better compliance. Boards and senior management should receive focused reporting on material risks, outcome trends, vulnerable customer considerations, actions taken and unresolved issues. This presents an opportunity to make Duty oversight more efficient, but firms must still be able to evidence good outcomes where the Duty applies.

Next steps

The consultation closes on 18 September 2026, and the policy statement is expected in Q1 2027.