Consumer Duty - rowing back on wholesale firms

重组与破产 | 02/10/2025

The FCA is proposing to narrow the impact of the Consumer Duty, including its application to wholesale firms.

It is only 2 years since the FCA’s much-heralded Consumer Duty (“the Duty”) came into force. On Tuesday, 30 September 2025, the FCA published a letter from FCA’s CEO, Nikhil Rathi, to Rachel Reeves, the Chancellor of the Exchequer, explaining how the FCA now plans to address concerns about the application of the Duty for firms which are primarily engaged in wholesale activity.

As mentioned in her July Mansion House speech, Ms. Reeves requested a review assessing the impact of the Duty and whether it unduly effects wholesale activity. In response, the FCA say they have undertaken extensive engagement to better understand the concerns some firms have raised and how to effectively address them. Issues the FCA identified included examples of business-to-business activities where the role of the Duty is unclear, challenges where services reach customers outside the UK, and some firms questioning whether the Duty should apply where they have no direct relationship with retail customers. Firms had also sought greater certainty as to how the Duty applies across different roles in the distribution chain, and had concerns both as to the lengths they felt they were required to go to prove their activities have no material impact on retail customers and that their compliance costs were disproportionate to their role in dealing with retail customers. The latter is something certainly I have come across, with firms which are basically wholesale-only firms who have small pockets of retail clients meaning they have to implement the hole gamut of the Duty in respect of a small subset of customers.

Mr. Rathi says that some firms have taken steps to comply with the Duty which were driven by uncertainty about our expectations and concern about the consequences of getting it wrong. He adds that some firms, “driven by their compliance and legal advisers”, appear to have taken an unduly prescriptive or administrative approach, increasing compliance costs unnecessarily. He refers to this as “conservatism”. However, I would suggest that this is hardly surprising given the arguably vague and imprecise parameters of the Duty, importing as it does requirements such as good faith, avoiding foreseeable harm, enabling and supporting customers and providing fair value.

Nevertheless, we are now told the FCA plans to amend the Duty’s rules to remove what they consider to be disproportionate burdens from wholesale firms.

Mr. Rathi sets out a four-point action plan, as well as steps HM Treasury (“HMT”) may

wish to consider.

In 2025, he commits that they will:

1. Provide more clarity on their supervisory approach and expectations under the Duty when firms work together to manufacture products for retail customers, seeking to reduce the potential for misunderstanding leading to excessive compliance costs and duplication of effort between firms, and adverse impacts on their respective business models where firms work together.

2. More critically, they will consult on plans to update the client categorisation framework, referring to a subset of investors who have the knowledge, experience, sophistication or resources that mean they do not need retail protections. The FCA will propose clearer, up-to-date standards for firms to identify clients capable of being treated as professional clients. The FCA are also considering a new test at a high threshold of assets, “to draw a brighter line for firms”. This would appear to involve a consent requirement, but would take such clients out of scope not only of the Duty, but also other retail customer protections.

Mr. Rathi suggests HMT “may also wish to consider” modernising the legislative exemptions in the Financial Promotion Order and the Promotion of Collective Investment Schemes Order, to dovetail with this work.

In the first half of 2026, we are also told the FCA will:

3. Consult on changes to rules on the application and requirements of the Duty, including through distribution chains, to clarify when the Duty applies, and re-assessing how its existing exemptions are working and whether they go far enough, including whether to draw a clearer line on business-to-business activities. They will also consider introducing further exemptions from aspects of the Duty where firms already have other regulatory obligations. Changes may include greater clarity on firms’ reliance on other firms in distribution chains, such as when designing and selling structured products.

4. The FCA will also propose removing business with non-UK customers from the scope of the Duty, acknowledging that firms can struggle in reconcile obligations from different jurisdictions.

Interestingly, Mr. Rathi refers to supporting a competitive UK financial services sector, saying this includes getting the Duty right for wholesale firms, whilst ensuring appropriate protections for consumers. He also refers to “rebalancing risk as part of our strategy”.

These proposals to limit and clarify the Duty appear to be a welcome recognition that it was overly broad in its application and placed unnecessary burdens on what were and are essentially wholesale firms. The changes to retail customer categorisation will be of particular interest to firms, but could be complex in terms of implementation, including possible re-assessment of existing customers’ classification.

That the FCA are proposing to arguably water down the Duty just 2 years after introducing them is perhaps understandable given the revolutionary nature of the Duty, but it is not ideal that some firms will have faced what arguably would have been unnecessary requirements.