Consumer Duty retreats from wholesale: the FCA redraws the perimeter

Three years after introducing the Consumer Duty as its flagship outcomes-based regime, the regulator is now consulting on three substantial changes to make the Duty 'more precise, proportionate and workable in wholesale markets' (FCA). The headline shift: business for genuinely non-UK customers will be removed from scope where there is no clear UK link or reasonable expectation of UK protection (FCA). Simon Walls, executive director of markets, frames it bluntly: the Duty 'was never intended to become a Wholesale Duty imposing on deals between sophisticated parties' (FCA).

A rare regulatory contraction

Regulators seldom retract perimeter. That the FCA is doing so publicly, and pairing the move with insurance simplification proposals on the same day (FCA), signals a deliberate recalibration toward competitiveness. Walls explicitly links the change to other wholesale reforms already in motion: simpler listing and prospectus rules, and consolidated tapes (FCA). The guiding philosophy, he writes, is to replace 'prescriptions with outcomes and pre-emptive checks with disclosures'. For boards that spent two years building Duty governance into B2B businesses, that is both vindication and a problem: the compliance architecture is now partly stranded cost.

What actually changes for the operating model

Three practical shifts matter. First, the FCA proposes case studies of what is out of scope, explicitly naming market making, custody and safeguarding as activities that 'should not normally be caught' (FCA). Sub-custodians, prime brokers and trading desks can finally retire defensive interpretations. Second, accountability in distribution chains is being clarified: a firm is 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' (FCA). That removes a significant chunk of duplicative due diligence between manufacturers and distributors. Third, the territorial narrowing matters most for the booking models of UK-headquartered global firms whose non-UK client books were swept in through a UK nexus that the regulator now concedes was overreach.

The stakeholder calculus

The risk for senior leaders is misreading the signal. This is not a softening of the Duty for retail-facing businesses, where the FCA continues to cite improved platform cash treatment and rising public confidence in banks as evidence the regime works (FCA). It is a sharpening of the line between retail and wholesale. Boards should expect the FCA to be less tolerant of firms invoking the new boundaries to dilute genuinely retail obligations, particularly in complex product design where distribution chain responsibilities are being clarified rather than removed. The consultation also lands alongside a separate FCA paper tightening conflicts rules for closed-ended investment fund boards, with final rules expected before year end (FCA). The regulator is reallocating attention, not retreating from it.

For chief risk officers and general counsel, the immediate task is to map which Duty-driven controls were built on the broader interpretation and which on genuine retail exposure. The former are candidates for unwind. The latter are not. Firms that move first will recover cost; firms that delay will discover the FCA has narrower patience for wholesale-style defences in retail-adjacent activity.