FCA refines Consumer Duty for wholesale markets
The Financial Conduct Authority (FCA) is consulting on three substantial changes to refine the Consumer Duty for wholesale markets. These proposals aim to remove unintended burdens and provide greater certainty for firms.
Three pillars of precision
The FCA proposes three key changes to make the Duty more precise and workable.
First, clearer boundaries will define what is out of scope, with activities like market making, custody, and safeguarding normally excluded.
The Duty will not apply where firms do not genuinely shape consumer outcomes.
Second, accountability will be clarified, removing duplication by ensuring firms are responsible for their own activities and can rely on others in good faith, responding only to clear signs of harm.
Third, territorial scope will be narrowed, excluding business conducted for genuinely non-UK customers.
This acknowledges the UK's role as a financial services exporter and allows local distribution to comply with local rules.
These combined proposals are designed to remove unintended burdens, enhance certainty, and maintain firms' competitive edge.
Unintended friction in wholesale
The Consumer Duty, while transformative for retail consumers, has inadvertently created friction and unnecessary costs in wholesale markets.
Firms expressed uncertainty, leading to an overly cautious interpretation that extended the Duty's reach beyond its original intent.
The FCA emphasizes that the Duty was designed for retail customers, not sophisticated wholesale counterparties who possess the expertise to negotiate and seek remedies without the inherent asymmetries present in retail markets.
Allowing an overly cautious application would contradict the FCA's broader reforms aimed at reinforcing the UK's position as a global financial centre, which prioritize outcomes over prescriptions and disclosures over pre-emptive checks.
Pragmatic adjustment, not retreat
This refinement of the Consumer Duty demonstrates the FCA's pragmatic approach to regulation, adjusting its framework based on real-world feedback.
It clarifies the boundaries without diluting the core protections for retail consumers, acknowledging the distinct nature of wholesale markets.
Such flexibility is crucial for effective, outcomes-based regulation, fostering trust and ensuring the UK's financial services remain competitive and efficient.