Consumer Duty: Distribution chains, manufacturer obligations and board reporting – what firms need to know

The FCA is proposing clearer definitions of what constitutes a "distribution chain" for Consumer Duty purposes, reducing uncertainty for firms, particularly those with limited or indirect roles in relation to a retail product.  Critically, the proposals confirm that firms are responsible only for ensuring compliance in respect of their own activities and are not expected to police or oversee the Duty compliance of other firms in the chain, unless separate regulatory requirements or contractual arrangements require it.

This test is being made more workable. The FCA is consulting on how the concept of "material influence" over the design or operation of a product should be applied to determine whether a firm falls within scope as a manufacturer and is proposing guidance to make this test more predictable in practice.  Where more than one firm contributes to manufacture, the FCA proposes to remove the "co-manufacturer" label and instead distinguish between principal and secondary manufacturers based on which firm exercises substantive control over the product's design and operation.

Where a firm is identified as a principal manufacturer, it will be subject to the full suite of product and services, and price and value, obligations under the Duty.  Principal manufacturers must ensure that all contributing manufacturers' roles and responsibilities are captured in a written agreement, which may sit within wider commercial contracts, that accurately reflects the reality of the arrangements.

The FCA proposes that secondary manufacturers will not be subject to all rules under the products and services and price and value outcomes, recognising that their contribution to the product may be limited in scope.  However, secondary manufacturers must take reasonable care to consider the impact of their contribution, including on price and value – and ensure it does not create a material risk that the product fails to meet target market needs, causes foreseeable harm, or does not represent fair value; they must also share relevant information with the principal manufacturer on request.

‍

Where a firm's ability to comply with its Duty obligations depends on information or actions from another firm in the chain, it may reasonably rely on that information, but the right to rely on does not extend to situations where it would be unreasonable to do so, for example where information received suggests a risk of consumer harm.  Draft rules would require firms sharing information with others to take reasonable care to ensure that information can properly be relied upon, and would codify the reliance principle in FCA rules for the first time, providing greater regulatory certainty for firms throughout the chain.

The FCA has heard from firms that large volumes of information are being gathered that serve little practical purpose, with inconsistent formats and variable quality creating resource-intensive processes that add cost without improving outcomes.  Proposed rules and guidance would support a more proportionate approach: firms should focus on information that is genuinely useful and can reasonably be accessed, avoid collecting data that does not meaningfully assist Duty compliance, rely on existing data where sufficient, and focus analytical effort on themes and trends at target market level rather than on individual customer data.

The FCA has made clear that it was never its intention for Consumer Duty board reporting to be onerous or to generate standalone packs that duplicate information already present in existing governance frameworks; reporting should be focused on the firm's role in delivering good outcomes where the Duty applies to its activities.  The FCA proposes rule changes and guidance to confirm that reporting should be commensurate with the firm's role and activities, can be incorporated into existing governance structures, should enable effective challenge by the board, must occur at least annually, and should include clear escalation routes for material issues as they arise.

The FCA is also consulting on clarifications to the territorial scope of the Duty, including in the context of multi-jurisdictional distribution chains and activities that touch the UK retail market only indirectly.  Firms operating across borders or within chains that include non-UK participants should review these proposals carefully to assess whether their current scoping assumptions remain accurate under the revised framework.

Firms should reassess whether, and to what extent, they are subject to the Duty by working through the key scope anchors the FCA is proposing to clarify:

• "retail market business",
• the definition of "product",
• whether the firm sits within a "distribution chain", and
• whether it has "material influence" over retail outcomes.

Firms should also check whether any of their activities fall within the FCA's proposed additional exclusions, including market making, indirect access providers, certain component services, safeguarding accounts and many custodian or depositary roles and update their scoping analysis accordingly.

Firms should plan for the Duty to apply only to retail market business where the retail customer is "usually resident" in the UK, reducing duplication for cross-border business. Manufacturers should ensure that products designed only for non-UK distribution are clearly reflected as such in their distribution strategies, with controls to guard against inadvertent sales to UK retail customers. Firms should also identify the limited situations where the Duty is proposed to continue to apply even for non-UK-resident customers, such as UK funeral plans and regulated or ancillary activities relating to UK pensions and ensure those are captured in their scoping.

Firms should classify themselves as either a principal or secondary manufacturer based on which firm exercises "substantive control" over core aspects of the product, including its design, operation, distribution strategy and value proposition, using the FCA's indicative factors as a guide. Where more than one firm contributes to manufacture, firms should agree and document roles and responsibilities in writing, ensuring the allocation reflects reality rather than contractual labels alone; this need not be a separate standalone document. If you have existing co-manufacture agreements in place, then these should be reviewed to ensure that there clarity in regards to who is principal and secondary manufactures and responsibilities of both parties are clearly documented.

Secondary manufacturers should prepare to comply with a narrower set of obligations, focusing on the impact of their specific contribution on the product and on price and value, and ensuring that contribution does not create material risks such as foreseeable harm to retail customers. Principal manufacturers should be in no doubt that they carry the primary compliance burden for the full suite of product and services, and price and value, obligations, and that the written allocation of responsibilities will be scrutinised if things go wrong.

Firms should streamline information requests and returns so they are targeted to what is genuinely useful for assessing retail customer outcomes, rather than generating large unused datasets. Monitoring should be focused on the firm's specific role and activities, using information that is reasonably accessible; firms are not expected to collect data that does not meaningfully help them understand how they influence retail outcomes, and should generally focus on themes and trends at target market level rather than individual customer data. Proportionate qualitative or targeted monitoring, such as sampling or focused engagement with key partners should be considered where appropriate.

Firms should structure their governance and operating models on the basis that they are responsible for compliance only in respect of their own role and activities and are not expected to oversee other firms' compliance across the chain unless other regulation or contractual arrangements require it, while remaining alert to situations where reliance on another firm's information would be unreasonable. Where management information indicates a potential issue, such as complaint trends, then firms should carry out sufficient root-cause analysis to understand whether it is a manufacturer issue, a distributor issue, or both, and work constructively with the relevant party to support good outcomes.

Firms should ensure that notification to the FCA is reserved for material concerns about another firm's conduct in the chain, and where reasonable, concerns should be raised with the other firm first to seek clarification or comfort before escalating to the regulator.

Boards should ensure that Consumer Duty reporting focuses on the firm's role in delivering good retail outcomes where the Duty applies, and the FCA proposes to clarify explicitly that firms do not need to produce a standalone Consumer Duty board report. The depth of board reporting should be driven by the extent of the firm's retail market business, its role in the distribution chain, its size and capabilities, and the risk of harm it poses; firms with limited roles should have streamlined reporting focused on impact, and reporting can be incorporated into existing governance structures to avoid duplication. At a minimum, firms should maintain at least annual proportionate reporting, with clear channels for timely escalation of material issues outside normal governance cycles. Boards should proactively challenge disproportionate board packs that add burden without adding value, if they provide little insight, firms should question and redesign their approach.

Where PROD 3 applies, firms comply with PROD 3 instead of the Duty's products and services outcome, but the price and value outcome remains separately relevant and should not be overlooked. Firms should plan to rely on existing PROD 3 arrangements where they already assess costs and benefits, and should not build separate processes solely to meet the Duty where existing frameworks are sufficient.

The FCA is seeking responses by 18 September 2026 and expects to publish a policy statement and make any new rules in Q1 2027. The consultation raises a number of areas where firms may have practical experience that could usefully inform the FCA's final approach, particularly on the principal and secondary manufacturer distinction, the reasonable reliance framework and the calibration of board reporting expectations. Firms with strong views should consider submitting a response, either individually or through a trade body.