The FCA Consumer Duty (PRIN 2A) applies where a firm has a retail customer relationship. For a professional indemnity broker such as Apex Insurance Brokers, that raises a threshold question every time a new commercial client comes on the books: is this firm a retail customer, and does the Duty apply to the broking relationship? This entry sets out how the perimeter works and how Apex documents the answer.
The FCA Glossary defines a retail customer for the purposes of the Consumer Duty by reference to three groups. The first is consumers acting outside their trade, business, craft or profession. The second is micro-enterprises. The third is small charities with annual income of less than £1 million. Anyone falling outside those three categories is a non-retail customer for PRIN 2A purposes, although the older PRIN 6 obligation to treat customers fairly continues to run in parallel across all customer types.
For PI broking, the practical question almost always turns on the micro-enterprise limb. Consumers do not typically buy PI cover, and the small-charity definition is straightforward. The micro-enterprise test is where the interpretive work lives.
The FCA Glossary imports the micro-enterprise definition from European Commission Recommendation 2003/361/EC. A firm qualifies if it employs fewer than 10 persons and either its annual turnover or its annual balance sheet total does not exceed €2 million. The turnover or balance sheet limb is an either/or test, not both.
The Recommendation also requires the enterprise to be autonomous. If the business is part of a larger group, or has significant partner or linked enterprises, the group figures may need to be aggregated before the test is applied. A small subsidiary of a large parent is not, in the technical sense, a micro-enterprise.
Companies Act 2006 s.382 uses a different small-company threshold for accounting purposes (turnover not more than £10.2 million, balance sheet not more than £5.1 million, employees not more than 50). That is the accounting classification, not the FCA one. Brokers should not confuse the two.
ICOBS 2.2 classifies insurance customers as either consumers or commercial customers. That classification governs pre-contract information duties, IPID delivery, and the demands-and-needs statement. It does not, by itself, determine PRIN 2A scope. A commercial customer under ICOBS may still be a retail customer under the Consumer Duty if it meets the micro-enterprise or small-charity test. A broker needs to record both.
At onboarding and at each renewal, Apex captures the data needed to make the classification: current employee headcount, latest filed turnover, latest balance sheet total, group structure, and (for charities) annual income. Figures are cross-checked with the client's accountant or HR contact rather than taken from a proposal form alone. The classification and the underlying figures are recorded on the client file, dated, and reviewed annually. Where a firm is close to a threshold, the file records the assumption and the point at which the classification would need to be revisited.
Where a client is a retail customer under PRIN 2A, the four Consumer Duty outcomes apply to the broking relationship: products and services, price and value, consumer understanding, and consumer support. Apex's fair value assessment, its communication testing, and its vulnerable-customer protocols all attach to that population. The client is also an eligible complainant for Financial Ombudsman Service purposes, although the FOS applies its own micro-enterprise test at DISP 2.7.9R which is aligned but should be checked case by case.
Borderline cases arise regularly. Group-owned firms may fail the autonomy test even where the trading entity is small; professional partnerships raise questions about whether partners count as employees; growing firms cross the threshold mid-year and need reclassification.
A three-partner accountancy practice engages Apex to arrange its PI cover. The firm has seven employees on the payroll plus three equity partners, giving 10 heads in total. Annual turnover is £1.6 million and the balance sheet total is £900,000. There is no group linkage — the practice is autonomous.
Treating the seven employees as the headcount (with the three partners as owner-managers whose position under Recommendation 2003/361/EC can be argued either way, so Apex records both interpretations on file), the firm has fewer than 10 employees. Turnover of £1.6 million converts to approximately €1.86 million, below the €2 million threshold. Apex classifies the practice as a micro-enterprise and therefore a retail customer for PRIN 2A. Consumer Duty applies to the broking relationship.
Two years later the practice hires four additional staff, taking the headcount to 11 excluding partners, and turnover reaches £2.4 million. The firm no longer meets the micro-enterprise test on either limb. Apex reclassifies the practice as a non-retail customer prospectively. The Consumer Duty ceases to apply from the reclassification date, although PRIN 6 fair-treatment obligations continue.
The parent entry on the Consumer Duty framework sits at Consumer Duty (PRIN 2A) for insurance brokers. The fair value assessment that follows from a retail classification is set out at Fair value assessment for PI insurance. Sector-specific PI guidance is available at accountants PI, solicitors PI, architects PI, and IFAs PI.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.