Consumer Duty for co-manufacturers: clarity now, consultation to follow

The FCA has published a statement addressing a question that has caused considerable difficulty in recent years: how should firms apply the Consumer Duty when they work together to manufacture products or services? The answer, in short, is more straightforward than many have assumed. 

The statement does not introduce new requirements. Its purpose is to correct what the FCA describes as misconceptions about what the existing rules require. For firms that have interpreted the co-manufacturing provisions cautiously, and have built compliance frameworks accordingly, this statement may come as welcome relief.

The problem

Since the Consumer Duty came into force, firms involved in manufacturing products or services for retail customers have grappled with how to apply the rules when more than one firm is involved. The difficulties have been practical as much as legal. Which firms are subject to the rules? What must they agree between themselves? Can one firm rely on another to discharge particular obligations, or must each firm satisfy itself independently?

These questions have proved particularly challenging in wholesale markets where firms may contribute components or services that are ultimately incorporated into retail products but have no direct relationship with end customers. The FCA acknowledges that some firms have interpreted the rules as requiring more than was intended.

What the FCA expects

The statement confirms two core expectations that supervisors will test.

First, firms must correctly identify which entities have a role in the manufacturing a product or service that is ultimately offered to retail customers. This is not as straightforward as it sounds, and the statement does not elaborate on how firms should approach the identification exercise.

Second, where more than one firm is involved, there must be a written agreement which sets out the allocation of responsibilities that reflects the actual role of each firm. This need not be a new document created for the purpose. An existing contract between the firms can fulfil this expectation provided that it clearly records which firm is responsible for what. The FCA’s focus is on effective and appropriate allocation of responsibilities. It does not expect firms to duplicate effort or to oversee each other’s activities. 

Correcting misconceptions

The statement addresses four areas where the FCA believes firms have over-interpreted the rules.

1. Decision-making. Where co-manufacturing firms’ roles are distinct, it may be appropriate for their responsibilities and decision-making to remain separate (although they should still be clearly agreed and records kept). The key requirement is that the allocation is clearly agreed and recorded.

2. Allocation of responsibilities. Responsibilities need not be divided evenly. If one firm’s role means it is best placed to ensure compliance with most of the relevant requirements, the allocation can reflect that reality. The test is whether the arrangement corresponds to what each firm actually does, not whether it appears balanced on paper.

3. Liability. A firm is generally liable only for harm that it has caused. The statement refers to paragraph 2.24 of FG22/5, which addresses situations where regulatory requirements or contractual arrangements may make a firm responsible for harm caused by another party in the distribution chain. However, the general position is that liability follows causation.

4. Reliance on other firms. Regulated firms in the distribution chain can rely on each other, where reasonable, to comply with the relevant rules. The critical point is that the arrangements between firms should make it clear which firm is responsible for each obligation. Responsibility should not be capable of falling between the gaps. 

Outsourcing: a distinct question

The statement notes that outsourcing is treated differently. Under SYSC, a firm that outsources an activity remains responsible for regulatory compliance in respect of that activity, even where the service provider is itself authorised. Where both firms are regulated, both will generally have responsibilities under the Duty. The FCA acknowledges that the interaction between the outsourcing rules and the co-manufacturing rules would benefit from clarification and intends to address this in its forthcoming consultation.

What the statement does not address

The statement provides helpful clarity on how co-manufacturers should allocate responsibilities once they have been identified. It does not, however, address the prior question of who qualifies as a co-manufacturer in the first place. 

This is often the more difficult issue in practice. Firms operate on a spectrum. At one end, a firm may provide a component or service that is incorporated into a product manufactured and distributed by others. At the other end, firms may collaborate from the outset on the design and development of a joint product. Between these extremes lies a range of arrangements where the characterisation is less obvious. 

The statement offers no guidance on where the line falls. For firms negotiating commercial arrangements, this remains a source of uncertainty. Different interpretations of who is and is not a co-manufacturer can create friction, particularly where one party believes the other should bear regulatory responsibilities that the other considers inapplicable to its role.

The FCA’s H1 2026 consultation will be an opportunity to address this threshold question. Firms with strong views on how the boundary should be drawn may wish to engage with the FCA ahead of that consultation. 

Scope and application

The statement applies to the Consumer Duty rules on products and services (PRIN 2A.3), and price and value (PRIN 2A.4), as well as the product governance rules in PROD 3 and PROD 7 and the new disclosure rules in DISC that take effect from April 2026. 

It does not apply to insurance. In that case PROD 4 contains separate co-manufacturing provisions and is subject to its own reforms. 

The statement assumes that the firms in question are authorised or subject to analogous requirements under a designated activities regime such as Consumer Composite Investments . Where a regulated firm is working with unregulated parties, the regulated firm remains fully responsible for compliance with FCA requirements. The ability to rely on other firms in the distribution chain does not extend to reliance on unregulated entities.

Next steps

Firms should review this statement and consider whether their current approach is more burdensome than the FCA’s expectations require. Where firms have built processes on the assumption that co-manufacturers must engage in joint decision-making or divide responsibilities evenly, there may be scope to simplify them. 

The FCA intends to consult on amendments to the co-manufacturing rules in the first half of 2026. The consultation will consider whether the existing exemptions are sufficient, whether further exemptions are needed for business-to-business activities that should not be captured, and how to clarify when firms can rely on each other in distribution chains. Stakeholders wishing to share views ahead of the consultation are invited to contact the FCA at ReviewOfRequirementsCFI@fca.org.uk.

For advice on how these expectations apply to your firm’s arrangements, please contact Jamie Gray.

Related News, Insights & Events