The Financial Conduct Authority (FCA) said the rules were likely to be straightforward for firms that either solely manufacture or distribute retail products or services, but firms with “complex arrangements with multiple firms” may find it difficult to determine.
The regulator said this could be confusing to firms active in wholesale markets that provide services to retail-facing firms.
Further, the regulator has been challenged on the scope for interpretation in how Consumer Duty is applied and is proposing to clarify how firms can make these judgements. It said it wanted its rules to “retain a degree of flexibility” so they can stay relevant as business models evolve.
The FCA is also proposing to simplify where the duty appears in its handbook, bringing it under one new chapter, PRIN 3A, instead of across PRIN 2A.1, PRIN 3 and the glossary.
It will clarify the retail market business definition by moving it from the glossary into its rules. The definition will remain the same and cover regulated activities, payment services, issuing electronic money, and ancillary or connected activities.
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To make the scope of the duty clearer, the FCA will include activities relating to the manufacture or distribution of a retail product or service to the retail market business definition. Further additions include setting the price of a retail product or service, preparing or communicating information, including promotions, for a retail product or service, and the provision of pre- or post-sale consumer support for a retail product or service.
This will also cover certain activities that do not fall within the above categories and where no product is being provided to retail customers, but there is a “clear connection to products sold to retail customers”.
Responsibilities of manufacturers and distributors
The FCA said Consumer Duty did not currently apply to firms with a limited or remote role, as they could not determine or influence customer outcomes.
However, where a firm works with a manufacturer or a retail product or service, it would remove references to co-manufacturing in its rules and instead focus on outcomes.
It is proposing that principal manufacturers ensure the contributions of all manufacturers are written out, while the regulator will set out factors for where a firm is considered to have “substantive control” over a product’s design, operation, distribution or value.
Secondary manufacturers will be subject to limited rules, such as the impact of their contribution on the manufacture of a product or service, and ensuring this contribution does not create material risks.
It said the distribution chain was currently undefined by the handbook, which could create uncertainty.
The FCA has received feedback that “information flows across distribution chains” were “one of the most challenging parts of the duty”, adding this would not be resolved by making distributors accountable for the entire chain.
“We think there can be more reliance among parties in a chain and less duplication,” the FCA said.
The regulator will amend its monitoring rules to streamline the amount of information gathered and shared by firms to understand it products and processes work well for customers, ensuring firms only collect information that is helpful.
The FCA is also proposing to apply the duty proportionately and to avoid duplication of effort where a firm outsources activities to another authorised firm.
Application to UK consumers
Consumer Duty currently applies to cross-border retail business, depending on the risks and structure of the sector, meaning some firms that serve overseas customers could have overlapping regulatory requirements.
The FCA is proposing to limit this to retail customers who reside in the UK, based on their residential address or place of establishment.
It said some firms may want to apply duty processes broadly, but the proposed rules will not require this.
