The UK’s Financial Conduct Authority (FCA) has introduced today (Monday) updates on the Consumer Duty regarding wholesale financial businesses that signal a course correction for a regulation that perhaps reached too far, too fast.
Since being introduced in mid-2024, the Duty has mandated an expensive level of scrutiny over retail financial products, with forex and CFD brokers in particular, feeling the squeeze.
According to Reuters, the one-time implementation cost of the Duty rules reached a staggering GBP 2.4 billion ($3.1 billion).
The FCA Scales Back Extra-Territorial Overreach
The most significant concession in these updates involves the extra-territorial reach of the regulation. Until now, B2B providers have found themselves entangled in UK compliance obligations for clients with no meaningful link to the British market.
By exempting genuinely non-UK businesses where there is no reasonable expectation of local protection, the regulator is alleviating the complexity and costs associated with navigating overlapping international regimes.
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Crucially, the regulator has admitted that a lack of clarity forced firms into an unduly administrative posture.
Driven by the warnings of compliance and legal advisers, many firms adopted a defensive approach that increased costs without actually improving consumer outcomes.
The new guidance clarifies the boundaries of what falls outside the Duty’s scope, such as what constitutes a professional client, and streamlines how firms collaborate on product manufacturing.
This addresses the previous duplication of efforts, where multiple firms performed the same assessments on the same products, which was inefficient and did not provide additional safety to the end user.
While the core principles of the Consumer Duty remain intact, this reduction in scope is a tacit admission that the initial roll-out imposed a weight the wholesale market was never designed to carry.
Despite these wholesale concessions, CFD brokers remain strictly within the scope of the Duty.
The FCA continues to issue stern warnings, notably in February when it criticised firms for gathering insufficient detail regarding client familiarity with complex investments. The regulator argues that many brokers failed to properly assess if CFDs were appropriate for their target audience, often relying on flawed scoring systems that overvalued superficial knowledge.
While the burden has eased for B2B providers, the scrutiny on retail brokers is likely to only intensify.
