Compliance Consultant provides this definitive guide to navigating the FCA Consumer Duty distribution chain. Mid-sized financial services firms continue to struggle with how to map responsibilities between co-manufacturers and distributors for jointly offered financial products. The dividing line ultimately comes down to which entity exercises decision-making control over the product’s design, pricing, and target market. Under the rules set out in PRIN 2A.3 and clarified in the December 2025 FCA supervisory statement, firms can successfully apportion these duties using structured compliance frameworks like our Consumer Duty / Operational Resilience Toolkit without over-complicating their commercial agreements.
We help mid-sized investment firms, wealth managers, and payment providers across the UK, Europe, and the Middle East map these regulatory boundaries. Our specialist regulatory compliance firm uses clear, documented, FCA-aligned frameworks to define where your product ownership ends and distribution begins. This approach allows your firm to satisfy regulatory supervisors while avoiding the friction of over-engineered contracts that delay commercial launches. We apply our practical “engage, execute, embed” methodology (where engage means establishing regulatory requirements before infrastructure is built, execute means driving process and organisational change in parallel with technology development, and embed means integrating compliance into real-world operations through testing and scaling) to make these divisions operational.
Identifying your regulatory status in the chain
Firms across the UK working with Compliance Consultant must first establish their exact legal classification under the Consumer Duty rules. Your regulatory status dictates your specific administrative and oversight burdens, meaning an incorrect classification can expose your senior management to direct accountability under the Senior Managers and Certification Regime.
| Role | Operational definition | Regulatory burden | Key tradeoff |
|—|—|—|—|
| Manufacturer | Creates, develops, designs, or operates the product. Sets the target market and price. | High (PRIN 2A.3 product approval process, fair value assessments). | Retains full control over product strategy but carries primary regulatory risk. |
| Co-manufacturer | Two or more firms that collaborate to design or operate a product, sharing decision-making control. | High (Must document exact division of responsibilities in a written agreement). | Requires extensive data sharing and alignment, but distributes the compliance load. |
| Distributor | Offers, sells, recommends, or provides the product to retail customers without altering its design. | Moderate (Information sharing, customer support, sales tracking). | Lower design responsibility, but fully accountable for how the product is sold and to whom. |
Defining the sole manufacturer
A sole manufacturer is the entity that maintains complete decision-making control over the development and management of a financial product. If your business designs the underlying features, establishes the pricing structures, and determines the target market without third-party input, you are a manufacturer.
Under the Financial Conduct Authority rules in PRIN 2A.3, a manufacturer must maintain and review a process for product approval before marketing. This means your firm is entirely responsible for completing fair value assessments and providing distribution partners with the information they need to sell the product safely.
Triggers for co-manufacturing status
Co-manufacturing occurs when two or more authorised firms collaborate to design or operate a product, sharing decision-making control. The most common trigger is white-labeling, where a distributor has a significant say in setting the price, adjusting the features, or defining a unique target market for their audience.
The FCA Supervisory Statement on co-manufacturing issued in December 2025 confirmed that firms do not need to rewrite their operational agreements if roles are already recorded. However, you must still document the exact division of responsibilities. If both firms have “material influence” over the design, both are held accountable by the regulator, even if one firm handles the majority of the operational administration.
When a firm is strictly a distributor
Your firm is strictly a distributor if you offer, sell, or recommend products designed by another business without altering their core characteristics or pricing. This is typical for independent financial advisers, wealth managers, and third-party platform providers.
Distributors do not carry the burden of designing the product approval process, but they cannot distribute blindly. You must understand the target market specified by the manufacturer and monitor whether your sales align with that definition. For a deeper look at which financial firms must meet these expectations, you can read our explanation on FCA compliance and who needs it.
Manufacturer and co-manufacturer obligations
As a specialist regulatory compliance firm, we assist manufacturers in establishing robust product governance procedures that survive regulatory scrutiny. Under the Consumer Duty, manufacturers must ensure their products are designed to meet the needs of a specified target market and provide fair value to those customers.
To meet these expectations, manufacturers must follow a structured path:
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- Specify the target market at a granular level, taking into account customer characteristics and potential vulnerabilities.
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- Complete comprehensive fair value assessments that balance the total cost to the customer against the expected benefits.
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- Provide clear, timely information to distributors, including the findings of product reviews and target market specifications.
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- Regularly review products to identify if they are causing customer harm or being distributed outside the target market.
Target market granularity
Under PRIN 2A.3.4, the product approval process must specify the target market at a “sufficiently granular level.” This requires looking closely at the risk profile, complexity, and nature of the financial instrument.
You cannot simply state that a product is designed for “all UK retail investors.” You must identify the specific knowledge, financial capability, and risk appetite your customers need to use the product safely. In a co-manufacturing arrangement, your written agreement must state which firm is responsible for defining this target market and how both firms will monitor sales. Guidance on these outcomes is detailed in the FCA’s FG22/5 Final non-Handbook Guidance.
Formal product approval processes
Every manufacturer must maintain a formal, documented product approval process. This process must be completed before any new product is marketed or distributed, and before any significant adaptations are made to existing products.
To help mid-market firms manage this requirement without excessive legal fees, our Consumer Duty / Operational Resilience Toolkit contains pre-built templates for mapping these workflows. These templates allow co-manufacturers to document their distinct responsibilities clearly, satisfying supervisors that both parties understand their boundaries. For broader guidance on governance standards, see our FCA compliance FAQs.
Distributor data sharing and sales oversight
Compliance Consultant works with distributors to establish clean, automated data-sharing processes that satisfy manufacturer requirements without creating administrative friction. Under the Consumer Duty, the distribution chain requires a continuous loop of information.
Distributors must provide manufacturers with the data needed to perform annual product reviews. Without consistent feedback from the frontline, manufacturers cannot verify if their products are performing as intended.
Distributors should regularly share specific metrics:
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- Total sales volumes and customer demographic summaries.
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- Percentage of sales made to customers outside the primary target market.
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- High-level summaries of customer complaints, including root cause data.
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- Feedback on customer understanding and service delivery quality.
If you are a distributor, you must also monitor your own distribution charges. If your advisory or platform fees are high enough to negate the value of the underlying product, the overall transaction fails the fair value test. This creates regulatory exposure for your firm, even if the manufacturer’s base pricing is entirely fair. To learn how to streamline these digital data exchanges and remove compliance friction, read our guide on how to audit and remove digital sludge for FCA Consumer Duty.
What most people get wrong
Implementing distribution chain rules often leads to operational panic. We see many firms over-complicating their frameworks due to common misconceptions about what the regulator expects.
Tearing up existing commercial contracts
Following the December 2025 supervisory statement, many firms assumed they had to renegotiate every vendor agreement on their books. The FCA explicitly clarified that this is unnecessary as long as current records clearly define roles and responsibilities.
If your existing commercial contracts already show which firm is responsible for product design, value assessments, and target market definition, you do not need to reopen those legal documents. The focus must be on practical implementation rather than generating billable hours for contract adjustments.
Assuming distribution means zero product responsibility
Many distributors believe they have zero accountability for a product’s value because they did not design it. This is a dangerous assumption.
Distributors must still review the manufacturer’s fair value assessment and combine it with their own fee structures. If your distribution costs push the total price of the product into a territory where the customer no longer receives a reasonable benefit, you are violating the price and value outcome. You must actively challenge manufacturer assessments if they seem unrealistic for your specific customer base.
Structuring your compliance framework
To manage these obligations without stretching your team, Compliance Consultant recommends using structured compliance retainers. Our tiered retainers deliver specialist expertise and professional templates at transparent, fixed prices.
- Silver (Compliance Professional): Best for established firms wanting proactive compliance management and professional-grade templates. Includes 8 hours of advisory support per month, and full digital templates like the Consumer Duty / Operational Resilience Toolkit. (Available quarterly at £895/month or annually at £795/month, saving 11%).
- Gold (Compliance Partner): Designed for firms wanting a dedicated compliance partner with complete template access and strategic board-level support. Includes 16 hours of advisory support, a dedicated named consultant, and a 4-hour response guarantee. (Available quarterly at £1,495/month or annually at £1,345/month, saving 10%).
Begin by reviewing your current distribution and co-manufacturing agreements to confirm that the boundaries of decision-making control are clearly documented. If you need help structuring these compliance pathways, do not guess or wait for an FCA inquiry. Book a free 30-minute discovery call with Compliance Consultant to discuss how our retained advisory services and templates can give your firm budget certainty. Email us at info@complianceconsultant.org with the subject “Retainer Discovery Call” or call our UK freephone at 0800 689 0190 to speak with our specialists.
