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FCA Proposes Clearer Consumer Duty Rules and Scope for UK Firms

The Financial Conduct Authority (FCA) is proposing changes to make the application and scope of Consumer Duty clearer, with a focus on limiting its scope to UK customers only. The regulator aims to simplify the rules and clarify how firms should interpret and apply Consumer Duty requirements.

The FCA stated that the rules are likely to be straightforward for firms that solely manufacture or distribute retail products or services. However, firms with complex arrangements involving multiple parties may find it more difficult to determine how the rules apply. The regulator acknowledged that this could be confusing for firms active in wholesale markets that provide services to retail-facing firms.

The FCA has received feedback challenging the scope for interpretation in how Consumer Duty is applied. In response, it is proposing to clarify how firms can make these judgements, while retaining some flexibility in the rules to ensure they remain relevant as business models evolve.

The regulator is also proposing to simplify where Consumer Duty appears in its handbook by consolidating it under a new chapter, PRIN 3A, instead of spreading it across multiple sections. The definition of retail market business will be moved from the glossary into the rules, but will remain unchanged, covering regulated activities, payment services, issuing electronic money, and related activities.

To further clarify the scope, the FCA will include activities such as the manufacture or distribution of a retail product or service, setting prices, preparing or communicating information (including promotions), and providing pre- or post-sale consumer support. The scope will also cover certain activities with a clear connection to products sold to retail customers, even if no product is directly provided.

Regarding responsibilities, the FCA said Consumer Duty does not currently apply to firms with a limited or remote role, as they cannot influence customer outcomes. The regulator proposes removing references to co-manufacturing and focusing on outcomes, with principal manufacturers ensuring all contributions are documented. Secondary manufacturers will be subject to limited rules, mainly concerning the impact of their contributions and avoiding material risks.

The FCA noted that the distribution chain is currently undefined, which can create uncertainty. Feedback highlighted that information flows across distribution chains are challenging, and the FCA believes there can be more reliance among parties and less duplication. The regulator will amend monitoring rules to streamline information gathering and sharing, ensuring firms only collect helpful information.

The FCA also proposes applying the duty proportionately and avoiding duplication where activities are outsourced to another authorised firm. Consumer Duty will be limited to UK customers under the proposed changes.