The implementation of Consumer Duty (“the Duty”) in 2023 was a major exercise for UK financial services firms, involving staff from all business areas, time and money. Overall, the FCA believes that it has had a positive impact and that it is delivering positive change for consumers.
However, it has not all been smooth sailing! Many firms have experienced issues working out how to apply requirements in a way that is proportionate for their business, particularly where they don’t deal directly with retail customers, or their distribution chains are complex.
Having previously committed to addressing concerns raised by firms primarily engaged in wholesale activity, the FCA has published CP26/23 Consumer Duty – scope and proportionality. CP26/23: Consumer Duty – scope and proportionality
Who will be affected by the FCA’s Consumer Duty proposals?
This consultation paper is of particular interest to firms who are subject to the Duty and:
- have a role early in the distribution chain, including those in the wholesale sector
- work with other firms to manufacture a retail product or service
- are part of a complex distribution chain
- conduct retail business for retail customers outside the UK
Key proposed changes to Consumer Duty
- Disapplying the Duty where firms conduct business for customers outside the UK, while retaining it where there remains a clear risk of harm to UK‑connected consumers.
- Providing greater certainty for firms on the scope of the Duty, particularly in multi‑firm distribution arrangements and for firms that are remote from retail customers.
- Helping firms to understand how they can apply the Duty in a more proportionate way when working with other firms, including how they should support vulnerable customers depending on their role and activities in the distribution chain. For example, firms who are more removed from the retail customer should consider risks arising from their own activities such as product design whereas firms who are closer to customers have more direct responsibilities for identifying and responding to vulnerable customer needs.
- Clarifying when and how firms can rely on each other when they work together in distribution chains including adjustments to information gathering to help firms focus on obtaining information that is genuinely useful for assessing customer outcomes, rather than exchanging large volumes of data, which may not be used.
- Reporting to the Board on the Duty should focus on the activities firms are responsible for. If a firm only does a limited amount of business which is in‑scope of the Duty, their Board reporting can be correspondingly limited. Frequency of reporting should be reasonable and proportionate to the firm’s activities, the nature and complexity of its products and services, its role in the distribution chain, and foreseeable harm to consumers. The FCA continues to expect that Boards (or equivalent governing bodies) receive clear reporting to assess whether the firm is delivering good outcomes in line with the Duty and material issues to be escalated in a timely manner outside of reporting cycles.
- Clarifying expectations of firms where the Duty interacts with other rules, including the product governance requirements in PROD 3.
Which activities could be excluded from Consumer Duty?
The consultation also proposes that the following activities are excluded from the Duty on the basis that they don’t involve retail market business activities:
- Merchant acquiring (unless a firm’s merchant client meets the definition of a retail customer for the payments sector)
- Market making which is undertaken in wholesale financial markets.
- Provision of ESG ratings which is typically a wholesale activity and there is limited direct use of ESG ratings by retail customers.
- Acting as an indirect access provider for example where a firm’s role is limited to providing another firm with sponsored access to the UK interbank retail payment systems, such as Bankers’ Automated Clearing System (BACS) and Faster Payment Service (FPS)
The consultation paper also proposes excluding the following activities where firms don’t engage directly with retail customer in relation to that activity:
- Safeguarding of funds for payment services or e‑money activity, where a credit institution’s role is limited to providing an account to a Payment Institution (PI), an Electronic Money Institution (EMI), or a Credit Union that issues e‑money, in which relevant funds are held in accordance with safeguarding requirements.
- Acting as a third‑party custodian where core custody services are remote from retail customers and custodians don’t directly shape the retail‑facing structure or features of the product or service.
- Acting as a depositary where they are not involved in determining retail-facing product features.
- Supporting defined benefit pension scheme trustees with respect to scheme members where services are provided within arrangements determined by the trustees, who remain responsible for investment decisions and the provision of members’ benefits.
The FCA considers the changes proposed to be material without fundamentally changing how the Duty operates. The aim of the changes are to give firms the confidence to act proportionately, which should lead to benefits such as a reduction in compliance costs being passed on to consumers, whilst continuing to ensure that appropriate levels of consumer protection remain in place
Views on the FCA’s proposals are invited between now and the 18th September 2026. The new policy statement is expected to be published in Q1, 2027.
If you would like to discuss how the FCA’s proposed changes could affect your business, or need guidance on applying the Consumer Duty in a proportionate and practical way, get in touch with Cosegic’s Consumer Duty experts. Our team can help you assess the impact of the proposals, review your current approach and ensure your governance and compliance arrangements remain fit for purpose.
