Grid of icons with one saying 'regulation'.
When the FCA introduced the Consumer Duty[2], we set out to do something simple but transformative: ensure financial services work better for consumers.
It was, by design, ambitious. And it is working. For example, most investment platforms have improved how they treat interest on clients’ cash and public confidence in banks has grown since the Duty was introduced. Wherever possible, it is also helping us to avoid prescriptive new rules.
The Duty’s foundations are simple harmonising concepts that apply across sectors and value chains. But it was novel, and a big undertaking for firms to implement, so it is only natural that we should reflect on how it’s been working three years on.
Tailored to wholesale standards
We have heard from some firms that uncertainty about the Duty causes friction in wholesale markets. The combination of a new regime and understandable caution by firms has, in practice, generated unnecessary cost and complexity for parts of the market where consumer protection is not at risk. That was not our intent. It’s a consumer duty not a wholesale one. While it is intended to cover manufacture of products for retail customers, the vast majority of business-to-business activities were intended to be simply out of scope.
We want to address this feedback. Wholesale markets perform a distinct function. They allow investors, companies and governments to raise and allocate capital, manage risk and fund investment. And they are central to the UK’s position as a leading global financial centre.
That is why we have been pursuing reforms to reinforce that position, for example, simpler listing and prospectus rules, consolidated tapes to improve price transparency and market liquidity. Our guiding philosophy has been to replace prescriptions with outcomes and pre-emptive checks with disclosures, thus enabling market forces to drive good outcomes. It would be self-defeating to allow an overly cautious interpretation of the Consumer Duty to work against those goals.
Wholesale markets are made up of sophisticated counterparties who are well-placed to negotiate, contract, and seek remedies without the asymmetries the Duty was designed to address. They are not the same as retail markets, and the regulatory framework should reflect that difference.
What we’re changing
We are therefore consulting on 3 substantial changes[3] to make the Duty more precise, proportionate and workable in wholesale markets.
First, we propose clearer boundaries, with case studies of what isn’t in scope in areas that participants have told us are ‘grey’. Activities such as market making, custody, and safeguarding should not normally be caught. We are clear that where firms don't genuinely shape consumer outcomes, the Duty doesn't apply.
Second, we are clarifying accountability when firms work together, removing duplication. A firm should be responsible for its own activities and able to rely on others to meet their obligations, provided it acts in good faith and responds where there are clear signs of harm.
Third, we are narrowing territorial scope. The UK is a major exporter of financial services, and our high standards are crucial to that success. But it is appropriate for local distribution to comply with local rules and so business conducted for genuinely non-UK customers will generally fall outside the Duty. For many investment banks, this will take a significant proportion of relevant revenues out of scope.
Taken together, these proposals should remove unintended burdens, give firms greater certainty and ensure they can continue to compete with confidence. Later this year, we will finalise the changes to client categorisation[4] we proposed last December, sharpening the distinction between retail and professional markets.
Staying focused on retail outcomes
This is a refinement of the Consumer Duty: responding to feedback, providing greater clarity and certainty, and keeping the regime focused on the consumer outcomes it was created to improve.
We will keep refining the Duty where experience shows we should. Not because the destination has changed, but because smart, outcomes-based regulation demands a willingness to learn and adjust.
The prize is not simply less friction. A well-calibrated Duty can build greater trust between consumers, firms and the regulator. Greater trust gives consumers the confidence to use financial services more fully — to save, invest, borrow and plan ahead. That is good for households, good for firms and good for growth.