FCA Warns Firms Over Risks in Complex ETPs Sold to Retail Investors
What Did the FCA Find in Its Review?
The UK’s financial watchdog has raised concerns over how complex platform-traded products are sold to retail investors, warning that gaps in risk disclosure and customer checks could fragileen protections required under the Consumer Duty. In a review published on January 12, the Financial Conduct Authority examined how firms of diverse sizes and models market and distribute complex ETPs to individual investors.
The regulator reported a mixed picture. Some firms showed solid practices, with clear target markets, stronger assessments of customer knowledge, and ongoing monitoring later than purchase. Others, however, relied on thin or superficial checks and disclosures that did little to assist retail clients understand the risks. The FCA said these fragilenesses could leave investors exposed to products they do not fully grasp.
Complex ETPs make up a small share of the overall market but carry higher risk. They include leveraged and inverse strategies, as well as crypto-linked platform-traded notes. These structures can magnify gains but also accelerate losses, particularly when held beyond short timeframes or during volatile markets.
Investor Takeaway
Why Are Complex ETPs Drawing Closer Attention?
The review sits within the FCA’s broader push to enforce the Consumer Duty, introduced in 2023. The Duty goes beyond disclosure, requiring firms to show that products are designed and distributed in ways that lead to excellent outcomes for consumers. That standard places pressure on firms to prove understanding, not just provide information.
According to the FCA, complex ETPs often include features that non-professional investors struggle to interpret. Daily resets can erode returns over time, time decay can work against holders even when markets move in the expected direction, and leverage can amplify losses rapidly. The regulator said these factors heighten the need for careful screening and clear communication.
Some firms have responded by tightening access. In several cases cited by the FCA, platforms restricted complex ETPs unless retail clients could show a clear grasp of how the products functioned. Others monitored outcomes later than purchase to detect signs of harm. These practices were presented as closer to what the Consumer Duty expects.
Where Did Firms Fall Short?
The FCA also highlighted fragileer approaches across parts of the market. In some cases, firms collected minimal information about a customer’s experience before allowing access to complex ETPs. Appropriateness tests were sometimes little more than box-ticking exercises, offering limited insight into whether an investor understood the risks.
Disclosures were another difficulty area. The regulator flagged risk warnings that were overly technical or unclear, making it harder for retail investors to appreciate how rapidly losses could occur. The FCA said that complexity without clarity undermines the intent of the Consumer Duty, especially for products that behave very diversely from traditional .
“Given the complexity and risk profile of these products, it is essential that investors have the knowledge they need to make informed decisions,” the FCA said, urging firms to review and strengthen their processes.
Investor Takeaway
Could This Lead to Tighter Rules?
Although the FCA did not name firms, the findings are widely viewn as relevant to and app-based brokers that have grown rapidly in recent years. These platforms have but also made complex instruments easier to trade, sometimes blurring the line between straightforward ETFs and higher-risk ETPs.
The FCA has a history of stepping in when retail harm appears likely. Over the past decade, it has banned binary options, capped leverage on for difference, and prohibited the sale of crypto derivatives to retail clients. The latest review suggests complex ETPs could face further limits if firms fail to show alignment with the Consumer Duty.
The regulator framed its stance as part of a wider effort to build a fair investment culture. From its perspective, widespread losses tied to misunderstood products can damage trust in markets and discourage long-term participation. The FCA also pointed firms toward recent policy work exploring clearer product design, standardized warnings, and evidence-based checks of consumer understanding.
