FCA Warns on Complex ETP Sales Practices

FCA Flags Risks in Complex ETP Distribution

The UKs Financial Conduct Authority (FCA) has issued a sharp warning to financial firms over how they market complex exchange‑traded products (ETPs) to retail investors. The regulator said weak risk assessments and unclear communications could breach the Consumer Duty, its flagship framework designed to ensure fair treatment of customers.

The move reflects growing scrutiny of leveraged and inverse ETPs, which remain niche but are expanding rapidly among retail traders. The FCA stressed that firms must strengthen their oversight as these products carry structural risks that can easily be misunderstood by non‑professional investors.

Retail Trading Growth Highlights Market Shift

According to the FCA, retail participation in complex ETPs rose 23% between July 2024 and July 2025, underscoring broader trends in self‑directed investing. While still a small segment of the market, the pace of growth signals rising appetite for high‑risk instruments among individual traders.

Three‑times leveraged ETPs have become particularly popular on UK exchanges. On the London Stock Exchange, three of the ten most traded ETPs in December 2025 employed 3× leverage strategies. The FCAs review examined whether distributors offering these products on an execution‑only basis are meeting Consumer Duty standards.

Why Complex ETPs Pose Elevated Risks

The regulator emphasized that complex ETPs are inherently high‑risk. Many involve leveraged or inverse structures that reset exposure daily. Over longer holding periods, these mechanics can cause performance to diverge significantly from the underlying index, leaving investors with outcomes that differ from expectations.

The FCA warned that retail clients who hold such products beyond the recommended timeframe may face results that do not align with their intended strategy. This risk is compounded when firms fail to explain product features clearly or neglect to test customer understanding before granting access.

Examples of Stronger Safeguards

The review found that some firms have implemented robust processes to define target markets, assess customer knowledge, and monitor outcomes. These firms required structured checks on investment experience and comprehension of complex product features before allowing retail clients to trade. Such practices, the FCA noted, demonstrate how Consumer Duty standards can be met effectively.

Consumer Duty Expectations Reinforced

The FCA has now urged all firms to revisit their procedures to ensure compliance with Consumer Duty requirements for complex ETPs. In particular, it called for stronger appropriateness assessments that test whether customers truly grasp product structures, including leverage, inverse exposure, daily reset mechanisms, and recommended holding periods.

The regulators stance reflects its broader push to align retail investor protections with evolving market dynamics. By tightening standards, the FCA aims to reduce the risk of mis‑selling and prevent retail clients from taking on exposures they do not fully understand.

Parallel Concerns Over CFDs

Alongside its ETP review, the FCA reiterated concerns about contracts for difference (CFDs). It warned last year that retail investors could lose vital consumer protections if firms classify them as professional clients. Under the retail regime, safeguards such as leverage caps and loss‑limiting measures prevent hundreds of thousands of people annually from risking more than their initial stake.

The FCA said some firms use high‑pressure tactics to push retail clients into waiving these protections, a practice it considers unacceptable. Such strategies undermine the purpose of financial licensing frameworks designed to shield consumers from excessive losses.

Social Media Promotions Under Scrutiny

The regulator also highlighted the growing influence of social media promoters, often referred to as “finfluencers,” in driving traffic to CFD providers. It noted that some influencers promote unregulated offshore firms without disclosing that services fall outside the UKs regulatory perimeter. In certain cases, they promise unrealistic returns through copy trading, managed accounts, or paid daily tips.

At one firm alone, more than 90,000 people lost approximately £75 million over four years after following such promotions. The FCA said these losses illustrate how quickly high‑risk products can spread when marketed through simple narratives and optimistic claims on social platforms.

Enforcement Action on Offshore Tactics

The watchdog reminded firms that they must not pressure retail clients into elective professional status or encourage them to open accounts with offshore entities to bypass UK rules. It warned that enforcement action will be taken against firms that deprive customers of consumer protections through such tactics.

By reinforcing its expectations, the FCA is signaling that regulatory updates will continue to focus on safeguarding retail investors in the forex industry and broader financial markets. The agencys message is clear: firms must adapt their sales practices to meet higher standards of transparency, accountability, and investor protection.