Background
In the FCA’s response to the Chancellor following the 2025 Mansion House speech, it committed to address concerns about the application of the Duty to firms primarily engaged in wholesale activity. The FCA explains that its proposals in CP26/23 are intended to fulfil that commitment with a focus on clarifying where the Duty applies and where it doesn’t, and ensuring it is applied proportionately.
Summary
The FCA’s proposed changes to the Duty include:
- Scope of the Duty – firms with customers outside the UK: The FCA are proposing to limit the application of the Duty to firms conducting retail market business where the customer is in the UK. In particular, this would limit the Duty to retail market business where the retail customer is usually resident in the UK, based on the customer’s residential address or, where the customer is not an individual, the place of establishment.
- The scope of the Duty – activities subject to the Duty: The FCA sets out proposals to give firms more certainty on the scope of the Duty and whether their activities fall within it, particularly for firms that are remote from retail customers, for example: (i) clarifications and amendments to concepts that anchor the scope of the Duty’s rules, including ‘retail market business’ and ‘material influence’; (ii) rule changes to address a specific challenge in how firms identify whether they are subject to the Duty where they work alongside other firms to create or deliver a retail product or service; (iii) clarifications on expectations where firms do not have a role in relation to one or more of the four sets of Duty outcome rules; (iv) further exclusions from the Duty for certain activities the FCA believes should not be subject to it, such as merchant acquiring, market making, provision of ESG ratings, acting as an indirect access provider, provision of derivatives in a third party’s product or service, and other specific examples in cases where the firm does not engage directly with retail consumers such as certain safeguarding and custodian activities.
- Proportionate application of the Duty: The FCA sets out proposed targeted changes to Duty rules and guidance intended to support firms to apply them in a way which is reasonable and proportionate focussing on how the Duty applies where firms are in scope, particularly as part of longer distribution chains. For example, the FCA intends to clarify in its rules that where a firm’s compliance with the Duty depends on information provided by, or actions carried out by, another firm in the distribution chain, the firm may reasonably rely on that information and on representations made by that other firm about the actions it has taken, although it further explains that firms will still be expected to act in good faith and not rely on information where it would be unreasonable in the circumstances. The FCA also proposes to make clarifications to its rules and non-Handbook guidance to reflect that firms may act differently to support customers in vulnerable circumstances depending on their role in the distribution chain, their activities and the risk of harm to consumers.
- The Duty’s interaction with other product governance and disclosure requirements for retail investment products: The FCA acknowledges that firms primarily active in wholesale markets generally do not interact directly with retail customers and instead distribute their retail investment products through third parties, and so it proposes to clarify its expectations of firms in these circumstances. For example, in relation to firms’ consideration of the interaction between the Duty and Product Intervention and Product Governance Sourcebook (PROD) 3, the FCA proposes to clarify that firms are only responsible for ensuring compliance in respect of their own role and activities, and are not expected or required to oversee the compliance of other firms in the distribution chain, unless other regulation or contracts require this.
- Technical clarifications: The FCA sets out out a number of technical clarifications intended to correct or clarify the drafting of the Duty rules and propose related revisions to its non-Handbook guidance, these relate in particular to the application of the Duty where an exemption applies in a sectoral sourcebook such as the Collective Investment Schemes Sourcebook and PROD. The FCA also intends to delete certain outdated references such as to the Board Champion.
Next steps
The FCA has asked for feedback on CP26/23 by 18 September 2026.
The FCA expects to publish a policy statement in Q1 2027.