Consumer Duty scope decisions need a documented wholesale boundary

At a Glance

MEMA recommends that firms with mixed retail and wholesale business document which products, services and distribution relationships sit inside the live Duty, which conclusions rely on CP26/23 being finalised and what evidence supports each boundary decision.

The Consumer Duty, introduced in 2023, sets high standards for retail financial services to deliver good outcomes for retail customers. Since implementation, the FCA has observed that some wholesale firms and complex distribution chains apply the Duty more widely than intended, leading to increased cost and uncertainty without clear consumer benefit. CP26/23 responds by proposing clearer scope boundaries and proportional application based on firms’ roles in distribution chains.

CP26/23 also proposes to remove business with non-UK retail customers from the Duty’s scope, clarifying that the Duty applies only where the retail customer is usually resident in the UK. The consultation aims to provide firms with greater confidence about when the Duty applies and how to apply it proportionately, particularly for firms operating in wholesale markets or with mixed retail and wholesale activities.

Where the proposed boundary matters

The consultation is particularly relevant to firms early in a retail distribution chain, wholesale firms with a link to retail products or services, firms in complex chains and firms serving retail customers outside the UK. Consumer groups, trade bodies and other stakeholders may also respond. That readership does not itself determine whether a product or activity falls within the live Duty.

Mixed-business firms should compare the proposal with their current scope analysis, identify the conclusions that would change if CP26/23 is finalised and retain the evidence supporting today's boundary in the meantime.

What CP26/23 proposes

Clarifying Consumer Duty scope for wholesale firms

CP26/23 proposes to limit the Duty’s application to retail market business where the customer is usually resident in the UK, excluding wholesale business without a clear link to retail outcomes. The FCA highlights that wholesale markets typically involve sophisticated counterparties and that the Duty is not intended to apply to business-to-business relationships without retail impact. MEMA recommends that firms assess their product and distribution chains to identify where the Duty applies and document these boundaries to support proportionate application.

Proposed removal of non-UK retail customers from Consumer Duty scope

The consultation proposes that, if finalised, the Duty would not apply to firms conducting business wholly for retail customers outside the UK. For products sold both inside and outside the UK, the proposal would apply the Duty only in relation to UK-resident customers. Manufacturers and distributors have distinct responsibilities: manufacturers should design products with UK distribution in mind, while distributors should use customer residence to determine Duty applicability. Firms should update their customer segmentation and distribution strategies accordingly.

Clarifying reliance and responsibilities in distribution chains

CP26/23 seeks to clarify when and how firms can rely on each other in multi-firm distribution chains to apply the Duty proportionately. For example, manufacturers complying with applicable disclosure regimes such as the Consumer Credit Information (CCI) regime may generally meet the consumer understanding outcome without duplicative steps. MEMA recommends that firms review their contractual and operational arrangements to ensure clarity on roles and responsibilities within distribution chains.

Interaction with other regulatory regimes

The FCA proposes non-Handbook guidance updates to clarify how the Consumer Duty interacts with existing disclosure regimes like the CCI regime. While CCI rules support aspects of consumer understanding, the Duty’s requirements remain broader, including obligations such as testing communications where appropriate. Firms should evaluate their compliance frameworks to ensure they meet both sets of requirements without unnecessary duplication.

Proportionality does not remove the need for clear scope boundaries

The FCA emphasises that while the Duty should be applied proportionately based on a firm’s role, this does not eliminate the need for firms to make clear, documented decisions about which activities and products fall within the Duty’s scope. MEMA recommends that firms with mixed retail and wholesale business maintain evidence supporting their scope assessments to manage cost, complexity, and regulatory expectations effectively.

Keeping the live Duty and the proposal separate

MEMA recommends that boards focus on ensuring that the firm has a clearly documented and defensible boundary for the Consumer Duty’s application, especially where retail and wholesale activities coexist. This involves reviewing evidence that supports which products and distribution chains are subject to the Duty and which are not, based on customer residence and the firm’s role. Boards can also ask whether the firm’s governance and control frameworks reflect these boundaries and whether they enable proportionate application without unnecessary cost or complexity.

Another key board consideration is the clarity of roles and responsibilities within distribution chains. MEMA recommends that boards seek assurance that contractual arrangements and operational processes delineate manufacturer and distributor obligations, particularly regarding disclosure and consumer understanding outcomes. Evidence should include updated governance documents, distribution strategies, and compliance monitoring reports that demonstrate coordinated and proportionate application of the Duty across the chain.

Decisions Before the Consultation Closes

Boundary evidence to resolve

MEMA recommends that firms undertake a detailed review of their product and service portfolios to identify which offerings are intended for UK retail customers and which are not. This includes assessing distribution strategies to ensure products designed for non-UK markets are not inadvertently sold to UK retail customers. Manufacturers should document their target markets and distribution restrictions, while distributors should verify customer residence information to apply the Duty appropriately. This boundary-setting exercise is critical to demonstrate proportionate application and to avoid unnecessary compliance costs.

MEMA recommends that distribution-chain maps identify which firm designs the product, controls customer-facing communications, holds outcome data and acts when harm appears. Those decisions should remain anchored to the live Duty while CP26/23 is under consultation. The map should distinguish current responsibilities from changes that depend on the FCA's final rules. It should also record data-sharing limits, escalation paths and the evidence used when one firm relies on another, so oversight remains proportionate without leaving control gaps.

Source Evidence

Plain English Glossary

• CP - Consultation Paper. FCA publication setting out proposed rule changes and inviting feedback from industry and the public.

Disclaimer

This article is for general information only and does not constitute legal or regulatory advice. Firms should assess the application of regulatory requirements by reference to their permissions, products, customers and operating model.

How MEMA Can Help

MEMA can help firms translate regulatory change into practical controls, policies, monitoring activity and board evidence. Book a free scoping call to discuss what this development means for your firm.

MEMA's Consumer Duty implementation support can help with board-report evidence, distribution oversight and action tracking.

Further reading: evidence and challenge in Consumer Duty board reports.