Simplify to comply: FCA clarifies Consumer Duty

February 2026  |  FEATURE | BANKING & FINANCE

Financier Worldwide Magazine

February 2026 Issue

Since coming into force on 31 July 2023, the UK Financial Conduct Authority’s (FCA’s) Consumer Duty regime – which aims to set higher and clearer standards of consumer protection across financial services – has been a source of contention for firms within its scope.

Among the issues is how to gather and interpret data to identify vulnerable customers, while a lack of clarity regarding regulatory expectations has caused disproportionate compliance burdens and costs. Firms have also expressed concern about ensuring products offer fair value and that information is shared effectively across complex supply chains. Additional unease relates to managing overlaps between the Duty and other existing rules.

“As a result, the FCA is revising the Duty to preserve its core aim of driving good outcomes for retail customers, while cutting unnecessary complexity and cost,” explains Christopher Collins, a partner at Katten Muchin Rosenman UK LLP. “Since the Duty went live for open products in July 2023 and closed products in July 2024, the regulator has received strong feedback regarding uncertainty over its scope, duplication in distribution chains and tension with cross-border obligations.”

A four-point action plan

To clarify aspects of the Duty and address concerns around its proportionality – particularly for financial services firms with predominantly wholesale activities – the FCA has released a series of proposed updates to its approach to the Consumer Duty. At the heart of these proposals is a four-point action plan.

“The FCA’s proposals aim to streamline regulatory requirements and reduce complexity for businesses,” says Matt Jones, a director at Burges Salmon LLP. “Stakeholders’ comments highlighted a need for greater flexibility and consistency in respect of the application of the Duty, with many reporting difficulties interpreting rules and guidance, as well as measuring outcomes such as price and value.”

The four-point plan – one of three Consumer Duty updates, which also includes two new websites – identifies areas where the regulator intends to amend rules that currently place “disproportionate burdens” on wholesale financial services firms. The FCA has already taken action to progress the first two points of this plan.

First, the FCA has provided further guidance on its supervisory approach and expectations under the Duty when firms collaborate to manufacture products for retail customers. This clarification is intended to help firms understand how the regulator will oversee joint product development and ensure compliance.

Second, the FCA has published a consultation on updating its client categorisation framework. The objective is to establish clearer and more current standards for identifying individuals who can be treated as professional clients. As part of this process, the FCA will also consider introducing a new high-asset threshold test for categorisation.

Third, in the first half of 2026, the FCA intends to consult on how the Duty and its requirements apply throughout distribution chains. This review will examine existing exemptions, explore further exclusions for business-to-business activities, and clarify when firms can rely on work undertaken by other firms within the distribution process.

Finally, also in the first half of 2026, the FCA proposes to remove business with non-UK customers from the scope of the Duty. This change recognises the challenges firms face in reconciling UK and overseas regulatory obligations. Before implementing such proposals, the FCA will assess the potential impact on UK consumers, including expatriates.

“For wholesale firms, the four-point plan will likely be seen as a step in the right direction toward making the Duty more proportionate and flexible,” adds Elisabeth Overland, counsel at Freshfields LLP. “Firms need to engage with the consultations to ensure any changes effectively address their concerns and then carefully assess the impact of any revised scope on their activities and internal processes.

“Likewise, the FCA’s focus areas may help firms understand the regulator’s supervisory priorities,” she continues. “Firms should consider any good and bad emerging practices shared by the regulator, as they may use these to benchmark their own practices and implement any appropriate updates.”

Intentions for success

Over the coming year, firms in scope of Consumer Duty obligations need to be prepared for a review of their implementation of the Duty, with wholesale firms in particular well advised to be proactive about responding to the FCA’s consultations on client categorisation and distribution chains.

“Firms will want to be supported by a clear regulatory framework that allows them flexibility to innovate and contribute to increased growth,” affirms Ms Overland. “This will involve a targeted application of the Duty and a recalibration of risk.

“The FCA will need to engage with industry so that any concerns relating to predictability and clarity in the application and scope of the Duty are addressed, including in the drafting of any revised rules and guidance,” she continues. “Whether the FCA succeeds in reducing unnecessary burdens and creates a more proportionate regime will ultimately depend on how clearly the proposals are translated into actionable rules.”

Others, such as Mr Collins, are cautiously optimistic. “The FCA now has the beginnings of a targeted review programme, published timelines and an intention to provide clarity to the market,” he says. “Success will depend on execution, coordination with HM Treasury and other stakeholders, and keeping changes targeted and specific – but the overall approach is sensible and, if maintained, should simplify compliance for a lot of firms.”

The FCA’s latest proposals signal a shift toward a more pragmatic and collaborative approach to regulation. By focusing on proportionality and clarity, the regulator is not only easing operational strain but also creating space for firms to innovate responsibly. If these changes deliver as intended, the Consumer Duty could evolve from a compliance challenge into a catalyst for better outcomes and stronger trust across the financial services landscape.

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Fraser Tennant