The FCA is planning to relax parts of the Consumer Duty rules to ease tensions on firms and make regulation more manageable.
Understanding Consumer Duty
Consumer Duty is a rule that forces financial firms to ensure they deliver fair and good outcomes for regular (retail) customers. It requires firms to think about product design, costs vs value, how well customers understand things, and how they are supported over time.
Why the change is being considered
Many firms say they struggle under heavy compliance costs and rigid rules. They feel these make it harder to grow or innovate. The regulator has heard that some rules are overlapping, outdated, or too prescriptive. Also, the government is pushing for lighter regulation to help economic growth and encourage business.
Key proposed shifts
1. Narrowing rules’ reach
The FCA may change definitions so that some firms—especially those not serving retail customers directly—face less stringent duty rules. There is talk of reviewing how “professional client” status is assigned so fewer need full protection.
2. Removing or reducing reporting burdens
Some data-return requirements that are not adding much value will be scrapped. The frequency of certain reports may be reduced. Firms will no longer always need to submit blank (“nil”) returns for certain items.
3. Streamlining senior roles regime (SM&CR)
The FCA plans to reduce the number of senior management roles requiring special approvals. It wants to cut duplicate certification demands and give firms more time or flexibility in meeting fit & proper checks.
4. More flexibility, less prescription
Rather than strict rules, firms may be allowed more judgment in how they meet standards — so long as consumer outcomes are solid. The FCA will publish guidance and examples to help firms see what meets expectations.
5. Retiring outdated rules and guidance
Old guidance documents, “Dear CEO” letters, and duplicative rulebook sections that date back years may be withdrawn or consolidated. This will simplify the rulebooks and help firms navigate requirements more clearly.
6. Reviewing international and cross-border application
Rules may be adjusted so that the duty does not always apply to operations outside the UK or to firms conducting business across jurisdictions in certain cases.
Challenges and trade-offs
- Allowing more flexibility means firms must document their decisions clearly, which risks inconsistency.
- In transition periods, uncertainty may increase: firms must decide whether to act under old or new rules.
- Relaxing too much could risk weaker protections for vulnerable consumers.
- The regulator’s culture, staff resources, and clarity in supervision must align with the new approach.
- New rules need to ensure alignment among the regulator, tribunals, and ombudsman decisions.
What firms should do now
Firms should engage in FCA consultations to influence outcome. They should audit their current Consumer Duty compliance, identify areas where burdens are high, and plan adaptation. They should document how they deliver positive outcomes now, so they can show they acted responsibly under changing rules. Firms must stay alert to new guidance or example materials from the FCA.
