Twelve Days of Consumer Duty #2: retail sale of non-retail products

It’s day 2 of our Twelve Days of Consumer Duty exploring key questions about this new regime midway through firms’ implementation efforts.  

Today’s question

“Am I in scope just because the person buying my non-retail regulated fund/product wants to sell it on to retail?”

Our thoughts

Let’s use a worked example: a wholesale firm manufacturing products that it intends for retail customers, but where the firm’s customer onward sells those products to retail customers in some way.

The starting point is whether you’re conducting “retail market business”.  To be caught, the activity you are conducting must be that of a firm in a distribution chain which involves a retail customer.

You might think this means you’re in scope.  Not so fast.

There are exemptions for purely wholesale activity.  One of these will carve you out if you’re manufacturing a product that is only marketed and approved for distribution to non-retail customers, but only if it is also not a product you provide to another firm (further to an arrangement between them and you) to enable that firm to distribute or operate another investment to/for a retail customer.

That’s quite a mouthful.  We think what the FCA is likely intending here is that:

• You’re in scope if a retail customer can invest directly in your product (notwithstanding that you’re initially selling to a non-retail customer).
• You’re in scope if you have an “arrangement” (and that may well include things falling short of a formal agreement e.g. an understanding or knowledge) with your non-retail purchaser that, for example, they will add your product into another product and onward sell it to retail.
• You’re probably out of scope if you manufacture a product for non-retail customers and there is no “arrangement” with that purchaser concerning any possible onward sale to retail customers, even if your purchaser does in fact repackage/combine your product with others and onward sell it to retail customers.

But as ever, the analysis will always depend on the specific facts of the individual case.

Want more?

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