Consumer Duty Scope and Proportionality: A Practical Guide to CP26/23
The Financial Conduct Authority (FCA) is consulting on changes that would limit the Consumer Duty to retail customers usually resident in the United Kingdom, redraw the boundary of which activities fall inside the Duty, replace co-manufacturing with a principal and secondary manufacturer model, and confirm that firms are responsible only for their own role in a distribution chain. The proposals appear in Consultation Paper CP26/23, published on 29 June 2026. The consultation closes on 18 September 2026 and the FCA expects to publish final rules in the first quarter of 2027.
Nothing changes yet: these are proposals, much of the package sits in non-Handbook guidance rather than in rules, and the Duty applies today as it did before.
The context is a commitment the FCA made to the Chancellor after the 2025 Mansion House speech, following concerns that the Duty was being applied more widely and intensively than intended, particularly in wholesale markets and long distribution chains. The FCA says it is clarifying where the Duty applies rather than narrowing its purpose. Its cost benefit analysis assumes all of the approximately 36,000 firms subject to the Duty are affected to some degree.
The proposals are aimed principally at wholesale and internationally active firms, and most commentary has read them that way. That understates their relevance to smaller firms, since three points land directly:
Firms are responsible only for their own role in a distribution chain.
Information gathered from other firms would be held to a proportionality standard.
No standalone Consumer Duty board report would be required.
Alongside CP26/23 the FCA published CP26/22, proposing a consistent territorial approach for the insurance conduct rules.
What Is the FCA Proposing in CP26/23?
There are five strands to the package.
1. Limiting the Duty to Retail Customers Usually Resident in the UK
The FCA proposes to apply the Duty only to retail market business where the retail customer is usually resident in the UK, determined by residential address or, for a customer that is not an individual, place of establishment. A firm conducting business wholly for customers outside the UK would fall outside the Duty for that business. Where a product is sold both in and outside the UK, the firm would comply with the Duty only in relation to customers usually resident here.
Three categories are carved back in: Crown servants posted overseas with a British Forces Post Office address, UK pre-paid funeral plans, and regulated or ancillary activities relating to UK pensions, including pension transfer advice and Qualifying Recognised Overseas Pension Schemes.
Responsibility for identifying location is split by role. Manufacturers designing a product only for distribution outside the UK would reflect that in their distribution strategy; distributors would use the customer's address unless there is reason to believe otherwise. Where a product not intended for the UK is sold here, the firm must review that strategy and act on any harm identified.
2. A Clearer Line Around Which Activities Fall Inside the Duty
The FCA proposes to consolidate the Duty's application provisions into a new chapter, PRIN 3A, and to redraft the concepts that anchor them: retail market business, product, distribution chain and material influence.
It also proposes a list of activities that would sit outside the Duty:
Market making and merchant acquiring
Providing ESG ratings
Acting as an indirect access provider to UK retail payment systems
Providing safeguarding accounts to payment and e-money institutions
Acting as a third-party custodian or as a depositary
Supporting defined benefit pension scheme trustees
Supplying certain derivatives and other components into a third party's retail product
The Society of Lloyd's would come out of scope, while Lloyd's managing agents conducting business for retail customers would remain in.
Two qualifications matter:
The list is non-exhaustive, and other Principles and rules continue to apply to excluded activities.
The custodian and depositary exclusions fall away where the firm engages directly with retail customers or takes a more active role.
3. Principal and Secondary Manufacturers
The term co-manufacturing would go. Where more than one firm contributes to manufacturing a retail product or service, firms would be classified as principal or secondary manufacturers depending on whether they have substantive control over its design or operation, judged against factors such as the power to decide core aspects of design, distribution strategy or value proposition.
The principal manufacturer would have to ensure a written agreement sets out each firm's roles and responsibilities, though not necessarily in a separate document. A secondary manufacturer would not be subject to all of the products and services and price and value rules, and would instead consider the impact of its contribution and ensure it creates no material risk of foreseeable harm.
The FCA acknowledges that revisiting existing agreements would be costly and invites views on implementation, including applying the rules only to new or materially amended agreements.
4. Applying the Duty Proportionately
This is the strand most relevant to smaller firms. The FCA proposes to state in its rules that firms are responsible only for their own role and activities, and are not expected to police other firms' compliance unless regulation or a contract requires it.
It would also confirm that a firm may reasonably rely on information and representations from another firm in the chain, consistent with provisions such as COBS 2.4, provided it acts in good faith and does not rely on that information where doing so would be unreasonable. A firm would also need to notify the FCA only about material concerns.
On vulnerability, what a firm does would depend on its role. Manufacturers remote from customers focus on product design, target market and distribution, and can take a risk-based approach for straightforward products, while distributors dealing directly with customers retain the immediate identification and support responsibilities. This is a calibration by role, not a reduction in the obligation.
A new rule would support a more targeted approach to information gathering: firms would focus on what they can reasonably access, look at themes at target market level rather than individual cases, and stop collecting data that does not help them understand their influence on outcomes.
On governance, reporting would be commensurate with a firm's role, and no standalone Consumer Duty board report would be required. It can be integrated into existing governance cycles, but should still happen at least annually, and the expectation that boards receive clear reporting and can challenge effectively is unchanged.
5. The One Proposal That Widens Scope
Among the technical clarifications is a change that runs the other way. The exclusion for financial instruments with a minimum investment of £50,000 would be restated in a rule and amended so that it applies per investment and per end investor, and cannot be used where investments are aggregated to reach the threshold. The threshold itself is unchanged, but the FCA gives the example of funds sold through a platform where the minimum is reached by aggregation, and firms relying on the exclusion that way would need to reconsider. The FCA also proposes to delete PRIN 3.2.8R and to replace FG22/5 in full.
What Should Firms Do Now
With final rules expected in the first quarter of 2027, the work now is assessment and, for firms with a real stake, a consultation response.
Check whether you rely on the £50,000 exclusion, and whether that reliance depends on aggregating investments. This is the one proposal that could bring activity into scope.
If you serve retail customers outside the UK, check whether any business falls within the funeral plan, UK pension or Crown servant exceptions, and confirm you can evidence usual residence.
Map your role in each distribution chain, and whether you would be a principal or secondary manufacturer under a substantive control test. Take stock of existing manufacturer agreements: you need not renegotiate them, but knowing how many you hold will tell you whether to respond on transitional arrangements.
Review what information you gather from and provide to other firms, and identify what you do not use. That analysis is useful whether or not the rules change, and the same goes for whether board reporting could be integrated into existing governance rather than produced separately.
Note the 18 September 2026 deadline. Firms with wholesale activity, complex chains or platform distribution have the clearest reason to respond.
Do not rewrite policies, retrain staff or restructure governance yet. The FCA puts total one-off costs across the sector at £92.1 million in its central scenario, roughly £36,000 for a large firm and £2,000 for a small one. Incurring that twice would be an expensive way to implement a simplification.
Frequently Asked Questions
Does CP26/23 change the Consumer Duty now?
No. CP26/23 is a consultation paper published by the Financial Conduct Authority on 29 June 2026, closing on 18 September 2026. The Duty applies as it does today until final rules are made, which the FCA expects in the first quarter of 2027. Much of the package sits in non-Handbook guidance rather than rules.
Would the Consumer Duty still apply to customers outside the UK?
Mostly not, but with exceptions. The FCA proposes to limit the Duty to retail market business where the customer is usually resident in the UK, judged by residential address or place of establishment. It would still apply to UK pre-paid funeral plans, UK pension activities, and Crown servants posted overseas with a British Forces Post Office address.
Do firms still need a Consumer Duty board report?
Reporting is still required, but not necessarily as a standalone document. The FCA proposes to clarify that firms need not produce a separate Consumer Duty board report and that reporting should be commensurate with their role. It should still take place at least annually, and boards must receive clear enough reporting to assess outcomes and challenge effectively.
Are firms responsible for other firms in their distribution chain?
Under the proposals, no. The FCA would state in its rules that a firm is responsible only for its own role and activities, and is not expected to oversee another firm's compliance unless regulation or a contract requires it. Firms could reasonably rely on information from others, provided they act in good faith.
Which activities would fall outside the Consumer Duty?
The FCA proposes exclusions covering market making, merchant acquiring, ESG ratings, indirect access provision to UK retail payment systems, safeguarding accounts, third-party custody, acting as a depositary, supporting defined benefit pension scheme trustees, and supplying certain components into a third party's retail product. The list is non-exhaustive and other Principles still apply.
How Compliance Angle Can Help
Compliance Angle supports FCA regulated firms in judging when to act on regulatory change and when to wait. For CP26/23, firms most often want help with:
Consumer Duty support, including how the proposed scope changes affect the firm's activities
Distribution chain mapping, including principal and secondary manufacturer classification and existing manufacturer agreements
Governance and board reporting reviews
Reviewing outcomes monitoring and information gathering against a proportionate standard
Policy, procedure and staff training updates once final rules are published
Support is scaled to the firm's business model, permissions, size and regulatory risk. A small retail-facing firm needs a short assessment and a governance decision; a firm sitting mid-chain, or relying on the £50,000 exclusion, needs a closer look.
To discuss what CP26/23 means for your firm, or for help preparing a consultation response before 18 September 2026, contact us at info@complianceangle.co.uk.
Source: Financial Conduct Authority, Consultation Paper CP26/23, Consumer Duty: scope and proportionality, published 29 June 2026. The consultation closes on 18 September 2026 and the FCA expects to publish final rules in the first quarter of 2027.
