After three years of firms building Consumer Duty into their compliance frameworks, the FCA is now considering whether some parts of the regime have been applied more widely than intended.
Its consultation on Consumer Duty: scope and proportionality closed on 18 September and proposes several changes that could narrow where the Duty applies. These include taking more business with non-UK customers out of scope, clarifying responsibilities across distribution chains and giving firms more flexibility to apply the Duty proportionately.
What could change?
One of the most significant proposals concerns overseas customers, as the FCA is considering limiting the Duty primarily to customers usually resident in the UK. For wealth managers, advisers and other firms serving international clients, this could reduce some of the Consumer Duty work currently carried out in relation to overseas customers.
The FCA also wants clearer boundaries between firms involved in designing and distributing financial products. The existing concept of co-manufacturing could be replaced with a distinction between principal and secondary manufacturers, with greater responsibility falling on firms that have substantive control over a product’s design or operation. Secondary manufacturers would face more limited obligations, reflecting their reduced influence over the eventual customer outcome.
The aim is to make responsibilities across the distribution chain clearer and reduce unnecessary duplication. Firms could have greater flexibility over the information they request from one another, when they can rely on work already carried out elsewhere in the chain and how extensively they need to monitor Consumer Duty outcomes.
Board reporting is where the FCA is most straightforward and could become more proportionate too. The FCA has seen firms produce detailed standalone Consumer Duty reporting packs that duplicate information already provided through existing governance processes. The proposals would change that in four ways:
- Scaled to the firm’s role:The extent of reporting would be commensurate with a firm’s role and activities in the distribution chain, and firms would not need to produce a standalone Consumer Duty board report.
- Only relevant obligations: Firms would not need to report on Duty obligations that aren’t relevant to their role, such as customer communications and support provided by other firms in the chain.
- Built into existing governance: Duty reporting could sit within existing board reporting and governance structures. The FCA also recognises that a standalone report may be disproportionate for very small firms, where the same person would produce and approve it.
- Focused on outcomes, not scope: Reporting should cover the firm’s role in delivering good outcomes, not ongoing technical assessments of whether the Duty could apply.
What doesn’t change is the cycle, and proportionate board reporting should still take place at least annually, with clear channels for escalating material issues outside the usual reporting cycle.
What should firms do now?
For now, the existing Consumer Duty rules remain in place, and although the consultation has closed, the FCA does not expect to publish its policy statement and any final rules until Q1 2027.
That means firms should not start removing controls simply because they may eventually fall away. Instead, this is an opportunity to understand where the proposals could affect the way the Duty currently operates within the business.
Firms with international clients, should be looking more closely at where customers are resident and which relationships might eventually move outside scope. Firms involved in manufacturing or distributing financial products may also want to revisit where responsibility currently sits across the chain and whether Consumer Duty work is being duplicated unnecessarily.
The same applies to monitoring and governance. If reporting has grown into a substantial exercise, firms can start asking whether every part of it genuinely helps senior management understand customer outcomes or whether some of the process has simply accumulated over the past three years.
The FCA’s direction is not to step away from Consumer Duty, but to make the regime more targeted and proportionate, particularly where firms have limited influence over the end retail customer.
Until the final rules arrive, the challenge for compliance teams is therefore to keep meeting today’s requirements while understanding where the boundaries may move next.
Where technology can help
If the proposal goes ahead, most of the work will involve evidence rather than new controls, therefore firms will need to show which customers fall in scope, where their responsibilities sit in the chain, and that their reporting is proportionate. All of this is difficult to do from spreadsheets and email trails built up over years, with no single source of truth.
This is where RegTech comes in, helping firms gather and track evidence faster and keep it accurate and ready for when the rules change.
| Challenge | How Leo helps |
| Identifying which clients are usually resident in the UK | Leo’s AML and KYC onboarding captures residence and establishment data in a structured way when a client comes on board. Firms can segment their client base now and be ready to adjust their monitoring once the final rules land. |
| Keeping monitoring and board reporting proportionate | Leo’s compliance monitoring module keeps Consumer Duty testing, findings and remediation in one place, alongside the rest of the monitoring plan. Board reporting can then draw on information the firm already holds, rather than a separate pack assembled each year. |
| Evidencing consumer understanding in financial promotions | Eva, Leo’s AI compliance assistant, reviews promotions against FCA expectations, flags risks, suggests amendments and keeps an auditable record of every review. Eva can also answer compliance teams’ questions about the proposals as they evolve. |
The FCA is not asking firms to do less for UK retail customers, it is asking them to be more precise about where their effort goes.
If you want to learn more about Leo and how we can help, contact us below.
Sources
- FCA, CP26/23 Consumer Duty: scope and proportionality (consultation page): https://www.fca.org.uk/publications/consultation-papers/cp26-23-consumer-duty-scope-and-proportionality
- FCA, CP26/23 full consultation paper (PDF): https://www.fca.org.uk/publication/consultation/cp26-23.pdf
- FCA, Products and services: good practice and areas for improvement: https://www.fca.org.uk/publications/good-and-poor-practice/products-services
