FCA Proposes Refinements to Consumer Duty to Clarify Scope for Wholesale Financial Firms

The UK Financial Conduct Authority (FCA) has announced plans to refine its Consumer Duty regime, aiming to provide greater regulatory certainty and reduce unnecessary operational friction for wholesale financial firms. While the FCA highlighted that the Consumer Duty has successfully driven improvements across retail financial services—such as how investment platforms handle interest on client cash—industry feedback indicated that the regime created unintended compliance burdens in wholesale markets. The regulator emphasized that the Duty was designed to protect retail consumers rather than govern sophisticated business-to-business transactions where counterparties can negotiate terms independently. To resolve ambiguity, the FCA is consulting on three primary adjustments to ensure the framework remains proportionate and practical for wholesale operations. First, the regulator plans to set clearer boundaries by publishing case studies of out-of-scope activities. Under the proposal, wholesale functions such as market making, custody, and safeguarding will generally be excluded from the Duty where firms do not directly influence retail consumer outcomes. Second, the FCA is clarifying distribution chain accountability to remove regulatory duplication. Under the updated approach, firms working together will be responsible for their own specific actions and permitted to rely on counterparties to meet their obligations, provided they act in good faith and intervene if there are evident signs of consumer harm. Third, the regulator is narrowing the territorial application of the Consumer Duty. Recognizing that overseas distribution should adhere to local jurisdictions, transactions conducted for non-UK customers will generally fall outside the regime's remit, significantly reducing the scope of covered revenues for international investment banks. Additionally, the FCA noted that it plans to finalize changes to client categorisation rules later this year to draw a sharper distinction between retail and professional market participants.