Chancellor Rachel Reeves has said that the impact of the Consumer Duty, introduced by the FCA in 2023, is “under review.”

In an unexpected announcement at her Mansion House speech this evening (15 July), the Chancellor said a review of the consumer protection measures and their impact was needed.

She has asked the FCA to carry out a review of the regulations, particularly their impact on wholesale providers who may only deal with professional clients.

She said: “I am introducing new targets for the FCA and PRA to cut times for authorisations and approvals and I have tasked the FCA with assessing the impact of the Consumer Duty and whether it unduly effects (sic) wholesale activity to ensure that regulators are really regulating for growth.”

The Chancellor’s words suggest that she has listened to critics who say that the sweeping measures in the Consumer Duty have potentially restricted the availability of financial advice by making it more expensive and may be having other unintended consequences in the wider market.

Many Financial Planners have said they are now focusing on clients with higher net worth because they have had to increase their fees due to the Consumer Duty requirements.

In recent times the FCA has tried to soften some of the measures in the Consumer Duty by, for example, dropping the requirement for a ‘Consumer Duty Champion’ on the boards of regulated firms.

It is unclear yet what the review might mean but it is expected the FCA or the Treasury will clarify the Chancellor’s intentions in the near future.

The review is likely to look at how the Consumer Duty has affected competition and growth in the financial services sector, particularly on the wholesale side.

According to the Treasury's Regulatory Environment - Cross-Cutting Reforms paper, issued as part of her Leeds Reforms, the Consumer Duty may be resulting in unexpected changes.

The paper says that the government recognises the importance of distinguishing between different types of activity, and treating these "in a manner that is proportionate to the sophistication and risk appetite of the persons who engage in them."

The Treasury says this is "particularly true" for firms that serve wholesale clients, who do not provide services to ordinary UK consumers. Wholesale firms and their clients have a different ability to bear risk and a different risk appetite to regular UK consumers, the paper says.

Responses to the Call for Evidence for the paper showed a "consistent feeling" that the FCA applied an approach to regulation that was "too one-size-fits-all." This was felt, in particular, by asset managers and other wholesale firms.

Many of the respondents mentioned the "scope and application" of the Consumer Duty as a notable case of consumer protection extending to firms who do not serve retail consumers or sell products directly to them.

The Chancellor has asked the FCA to report back to her by the end of September on how it plans to "address concerns about the application of the Consumer Duty for firms primarily engaged in wholesale activity."

The FCA has been asked to set out how it plans to deal with concerns about the way the Consumer Duty is working for "wholesale firms engaged in distribution chains which impact retail consumers" and provide certainty on the categorisation of professional clients. It will test its plans with market participants, industry and consumer groups before reporting back, the Treasury says. 

In her Mansion House speech the Chancellor made clear that she expected financial services to be a major engine for growth in the economy and she has already given the FCA a growth agenda which the FCA is responding to by trying to cut back on red tape and unnecessary data requirements from regulated firms.

The FCA has been asked for comment.

• Story updated with additional details.