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FCA proposes to narrow Consumer Duty scope: non-UK business out, distribution chain duties clarified (CP26/23)

Wholesale and cross-border firms get the clearest signal yet that the Consumer Duty was never meant for them. Responses due 18 September 2026.

Eleanor Vance 2 min read
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FCA proposes to narrow Consumer Duty scope: non-UK business out, distribution chain duties clarified (CP26/23)
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Worth reviewing. Affects wholesale firms, cross-border distributors, payment firms, custodians, and anyone uncertain about their position in a distribution chain.

The FCA published CP26/23 on 29 June 2026, proposing to narrow the Consumer Duty's perimeter in ways that will matter to a wide range of firms beyond the obvious retail-facing names. The headline change: business for genuinely non-UK customers falls out of scope where there is no clear UK link or reasonable expectation of UK protection. In practice, the test turns on where the retail customer is usually resident, using the customer's residential address or, for non-individual customers, their place of establishment.

Simon Walls, the FCA's executive director of markets, said the Duty "was never intended to become a Wholesale Duty imposing on deals between sophisticated parties." The FCA also acknowledged that uncertainty about expectations had led some firms to go further than required, raising compliance costs unnecessarily.

Beyond the territorial change, the paper proposes new explicit exclusions for activities where a firm touches a retail product chain but has no direct relationship with the retail customer. A first group covers market-infrastructure roles: merchant acquiring, market making, the provision of ESG ratings, acting as an indirect access provider, and the provision of derivatives used in a third party's retail product or service. A second group covers custody and payments roles: safeguarding of funds for payment services or e-money activity, acting as a third-party custodian, acting as a depositary, and supporting defined benefit pension schemes. All of these are excluded where firms do not engage directly with retail customers.

Distribution chain responsibilities are also restructured. The FCA proposes to replace the concept of co-manufacturing with a principal and secondary manufacturer framework: the firm with substantive control over a product's design or operation carries the heavier load; other contributing firms become secondary manufacturers with lighter obligations. Firms are responsible only for their own activities and are not expected to police compliance elsewhere in the chain. Firms may rely on information from other chain participants unless doing so would be unreasonable, for example where that information signals a risk of consumer harm.

Two practical clarifications will affect most in-scope firms. First, firms do not need to comply with all four Duty outcomes if their role does not engage a particular one: a firm with no hand in customer communications need not address the customer understanding outcome. Second, board reporting can be folded into existing governance structures rather than requiring a standalone pack, though it must still happen at least annually.

These changes do not affect the Duty's application to retail-facing businesses. The FCA describes them as sharpening the boundary between retail and wholesale, not reducing consumer protections. The consultation closes 18 September 2026; a policy statement and final rules are expected in Q1 2027.

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