FCA sets out its expectations of co-manufacturers

As promised in its September letter to HMT, the FCA is continuing its work to rebalance the benefit and burden imposed by the Consumer Duty, partiularly in the wholesale sector. It has published a short statement intended to outline its expectations where firms co-manufacture products for retail. This follows feedback that firms are finding difficult to decide which firms are subject to the rules, or to understand their obligations to one other.

The statement is an interim measure aimed at clarifying what a proportionate application of the current rules looks like. It will be followed by a full consultation on the current co-manufacturing rules next year. The FCA states explicitly that the statement does not set any new requirements, nor does it require firms that have implemented appropriate measures to amend their approach.

The FCA confirms that its supervisors test compliance by considering the following:

• Have all those with a role in manufacturing a product for retail been correctly identified?

• Is there a written agreement clearly allocating each manufacturer’s respective responsibilities for ensuring compliance with relevant regulatory rules (this may be an existing contract between firms)? 

Dispelling misconceptions

The statement confirms that:

• Regulated firms in the distribution chain can rely on each other, where reasonable, to comply with relevant regulatory obligations.

• There is no expectation that firms duplicate effort or oversee each other’s activities.

• Responsibilities and decision-making by co-manufacturers may remain separate.

• Allocations need not be equal. One firm may be responsible for ensuring compliance with the vast majority of requirements.

• Firms are generally only liable for the harm they cause – not that caused by a co-manufacturer or any other firm in the distribution chain. The only exception to this is outsourcing, where SYSC rules require that an outsourcing firm remains responsible and accountable for compliance with any regulatory responsibilities applying to the relevant outsourced activity. (Note that, where a firm outsources to another party which is itself an authorised firm, generally both firms will have responsibilities under the Duty – although the FCA plans to clarify this in next year’s Consumer Duty CP.)

• Where a regulated firm works with an unregulated firm to manufacture retail products, the regulated firm remains responsible for complying with relevant FCA requirements.

What’s missing? Whilst the statement goes into some detail about co-manufacturer obligations, it does not deal at all with the - often much more difficult - question of identifying who is or is not a co-manufacturer.  Firms operate on a continuum here, providing components of retail products manufactured by third parties on the one hand, and agreeing from the outset to collaborate on manufacture on the other. There are a range of activities in between these two extremes. Managing differeces in interpretation of the rules can be challenging in practice, and it is disappoitning that the FCA has not chosen to share its thoughts on this important gating question here. 

Hopefully clarity on identification will follow in next year's Consumer Duty CP.