FCA Consults on Removing Non-UK Business from Consumer Duty Scope: What CP26/23 Means for Wholesale Firms

Background: Why the FCA Is Consulting Now

The Consumer Duty came into force in July 2023 under PS22/9, establishing a higher standard of consumer protection across all regulated activities. It introduced four outcome areas: products and services, price and value, consumer understanding, and consumer support.

From its inception, the application of the Duty to wholesale firms created significant uncertainty. The Duty applies to a firm's retail market business, which captures any firm manufacturing a product that eventually reaches a retail consumer, even when that firm has no direct customer relationship. Wholesale banks, fund managers, insurance underwriters and other firms operating early in distribution chains found themselves subject to retail consumer protection rules that were never designed with their business model in mind.

In July 2025, as part of the Leeds Reforms package, the Chancellor asked the FCA to report on how it would address these concerns. The FCA responded with a four-point plan, of which CP26/23 represents one of the most significant elements: a proposal to remove business with non-UK customers from the Duty's scope entirely.

What CP26/23 Proposes

CP26/23 contains four main proposals:

• Remove business conducted with non-UK customers from the Consumer Duty's scope
• Provide clearer guidance on where the Duty applies within complex distribution chains
• Clarify when firms can rely on each other in distribution chains for compliance purposes
• Explain the interaction between the Duty and existing product governance rules such as PROD 4

Simon Walls, FCA Executive Director of Markets, stated the Consumer Duty was created to improve retail consumer outcomes and was not intended to become a wholesale duty for transactions between sophisticated parties. The proposal is presented as a clarification of original intent, not a weakening of consumer protection.

What Changes and What Stays the Same

The key distinction the FCA is drawing is between business that ultimately reaches UK retail consumers - which remains in scope - and business conducted with non-UK customers that happens to be routed through UK-regulated entities, which would be removed from scope.

UK retail consumers will continue to benefit from the full Consumer Duty protections: the right to products and services that meet their needs, fair pricing, clear communications and accessible support.

The Case for the Change

Wholesale firms identified several concrete problems with the current application of the Duty to their business:

• The cost and complexity of applying retail-focused obligations to business-to-business transactions between sophisticated counterparties
• Uncertainty about the scope of the Duty where a UK firm manufactures a product that is sold to non-UK customers by a non-UK distributor
• Duplication of compliance where overseas activity is already subject to equivalent regulation in another jurisdiction
• Defensive implementation: firms applying the Duty to activities where they were uncertain whether it applied, to avoid regulatory risk

The FCA acknowledges these concerns are legitimate. The Duty was designed for the relationship between firms and retail customers, and applying it to wholesale market infrastructure introduced an unintended compliance burden that reduced the competitiveness of UK-regulated firms relative to their overseas peers.

Timeline for Firms

• 29 June 2026: CP26/23 consultation opens
• 18 September 2026: CP26/23 consultation closes
• 4 September 2026: CP26/22 insurance rules consultation closes
• Q1 2027: FCA to publish policy statement and make new rules

Until new rules are made, the current Consumer Duty applies in full to all in-scope activities. Firms should not pre-empt the consultation outcome by withdrawing compliance work from activities currently in scope.

What is CP26/23?

CP26/23 is an FCA consultation paper opened on 29 June 2026 proposing to remove business with non-UK customers from the scope of the Consumer Duty. The consultation closes on 18 September 2026, with new rules expected in Q1 2027.

Does this change affect UK retail consumers?

No. The proposal only affects business conducted with non-UK customers. UK retail consumers continue to benefit from the full Consumer Duty protections on products and services, pricing, communications and support.

Which firms are most affected by CP26/23?

Wholesale banks, insurance underwriters, fund managers, structured product manufacturers and other firms that operate early in distribution chains and conduct business with non-UK customers or counterparties.

What is the relationship between CP26/23 and CP26/22?

CP26/22 is a separate FCA consultation on simplifying insurance rules, running alongside CP26/23. It proposes changes to the territorial application of the Insurance Conduct of Business Sourcebook (ICOBS) and PROD 4. CP26/22 closes on 4 September 2026.

When will the new rules take effect?

The FCA expects to publish a policy statement and make new rules in Q1 2027, following the close of the CP26/23 consultation in September 2026. Current Consumer Duty obligations remain in force until new rules are made.