Consumer Duty And Client Categorisation

The Consumer Duty, introduced in 2023 by the Financial Conduct Authority (FCA), sets a higher standard of care that firms must deliver to retail customers. The FCA has recently published a series of high-level considerations aimed at streamlining regulatory requirements and improving efficiency for firms.

What changes are to be made?

Following feedback from its regulatory summit in July 2025 calling for clearer guidance and greater consistency on the scope of the Duty, the FCA has adopted a four-point action plan. This is designed to remove disproportionate burdens from wholesale firms and give firms confidence to act proportionately.

1. Provide guidance to firms working together to manufacture products for retail customers. The FCA intends to provide defined duties and expectations for firms that work together during the manufacturing process. Allocating specific responsibility to wholesale firms will reduce potential misunderstandings during the process that lead to excessive compliance costs and duplication of effort between firms. Therefore, firms working collaboratively can confidently rely on the information supplied by each other, improving commercial relationships, efficiency, and cost-effectiveness.

2. Update client categorisation rules.The FCA has proposed an initiative to enforce clearer standards for firms to identify individuals who can be treated as professional clients. To this end, the FCA is considering supplementing this with a new test at a high asset threshold to clarify the parameters. Consequently, firms will be more confident in identifying such individuals and, with their consent, removing them from the scope of the Duty and other retail protections. In turn, limiting exposure for wholesale activity.

These amendments intend to ensure that opted-up investors are not superficially satisfying the elective professional investor criteria in COBS 3.5. Opted-up investors will be obliged to inform firms of changes affecting their categorisation in order to protect the investor's interests, while firms will be required to keep adequate supporting records their ongoing eligibility.

3. Consult on changes to the rules on the application and requirements of the Duty, including through distribution chains. The FCA has recognised that there is growing confusion among firms regarding when and where the Duty applies. The amendments are intended to encourage firms to rely on each other when working together in a distribution chain, such as when designing and selling products. This will remove overlaps in the application of the rules and help assess the effectiveness of existing arrangements.

4. Remove business with non-UK customers from the scope of the Consumer Duty. The FCA has acknowledged that firms with a cross-border element are struggling to reconcile jurisdictional obligations, which creates complexity and cost. Therefore, the FCA is considering removing non-UK customers from the scope of the Duty in order to alleviate onus on wholesale firms.

The immediate benefit of these proposals promotes greater clarity for firms. The FCA aims to maximise the benefits of the Duty by encouraging firms to deliver good outcomes for retail customers, without impeding their ability to take calculated risks and innovate in ways that support consumer financial wellbeing and the wider economy.

In parallel, the FCA is streamlining its rulebook, improving consistency in rules and definitions, updating legacy disclosure requirements, and coordinating more closely with the Financial Ombudsman Service with a specific focus on complaints handling and consumer support.

Client categorisation

The proposed changes to client categorisation are particularly significant. If more sophisticated or high‑net‑worth individuals can be treated as professional clients under clearer standards, parts of your business may fall outside the Duty for those relationships. This affects product design, distribution pathways, disclosures and complaints handling.

However, a recent Court of Appeal decision is a timely reminder that categorisation must be judged against the rules, not merely against the firm's internal procedures. Firms must satisfy both the qualitative and quantitative tests, avoid "tick‑box" assessments, seek evidence where there are red flags and document judgments carefully.

The case confirmed that relying solely on client representations is not enough when inconsistencies suggest further inquiry is needed, and that contributory negligence may reduce compensation where a client's own misstatements contribute to loss.

With clearer and updated client categorisation criteria this may help firms navigate the process. In turn, comforting opted-up investors as their eligibility will be assessed in accordance with the relevant law and at an enhanced standard beyond mere tick boxes. More broadly, investors will gain a greater understanding of the opt-up process and its associated risks.

Overall, the FCA's four-point action plan is intended to create a more cost-efficient and streamlined regime for firms that collaborate to serve retail customers. The FCA will provide further consultation on proposed changes to the client categorisation regime. Firms are encouraged to engage and consider the forthcoming consultation before amending their internal processes.

What do these changes this mean for fund managers?

For fund manager distributing to UK retail investors, expect clearer rules in relation to the application of the Duty and how responsibilities are split across co-manufacturers and distributors. For sponsors offering to high-net worth individuals, anticipate a more an objective and reliable pathway to professional status at higher asset thresholds, provided fund managers maintain evidence and ongoing monitoring.

Across both areas, the intent it not to dilute retail protection but to focus them where they matter the most, while providing wholesale-firm facing managers and sponsors greater certainty and confidence to act proportionately.

Nyah Clark, Trainee, contributed to this article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.