A review of firms that deal in complex exchange-traded products — such as leveraged and inverse ETFs, as well as crypto-based products — found that firms need to make improvements in a variety of areas to avoid investor harm, the U.K.’s Financial Conduct Authority (FCA) says.
In a report published on Monday, the FCA detailed the results of a review of the distribution of complex ETPs to retail investors, carried out in 2025. In it, the regulator looked at how firms evaluate these products, communicate risks to investors and monitor outcomes under their regulatory duty to ensure that consumers are treated fairly.
While some firms had detailed processes to ensure compliance, “Others had weaker controls or limited assessments of a customer’s investment experience and knowledge,” it said.” We also saw unclear disclosures, making it harder for consumers to understand risks.”
In the wake of its review, the FCA said that firms should review their processes to ensure they are meeting their obligations to clients under the U.K.’s new Consumer Duty.
“This includes addressing gaps in appropriateness checks and clearly communicating risks to retail investors,” it said.
In the report, the FCA said that its research found that the number of investors trading complex products is on the rise, increasing by 23% over the past year — with investors often accessing these products through order execution-only services and other digital platforms.
Yet, it noted that retail investors “may not always fully understand these products.”
In response, the regulator undertook a review to assess whether the firms that are distributing these products are meeting industry conduct standards.
While some firms actively screened investors, and restricted access for investors that were assessed as unsuitable to trade complex products, many firms just relied on the product manufacturers to define their target market.
“There were often insufficient controls in distribution arrangements, with firms relying solely on the appropriateness test as a control. These controls were often not robust enough to have the desired effect,” it said — adding that, “Some firms didn’t review their processes regularly to identify and prevent distribution to consumers outside the intended target market.”
Failing to ensure that investors understand the risks of investing in complex ETPs, can lead to “poor outcomes and significant losses,” it said.
For instance, the FCA found that “few firms highlighted the risks of holding leveraged/inverse ETPs beyond the recommended holding period (typically one trading day), which could expose consumers to tracking errors due to the impact of daily price resets,” it said. “This concern was compounded by a lack of active monitoring of consumer holding periods by some firms.”
The review found that 82% of trades in complex ETPs between mid-2024 and mid-2025, were held for longer than one day. While some investors may be holding these products as part of a specific strategy, many “may not fully understand the recommended holding periods, or the risks involved,” the FCA said.
“We’re concerned about whether firm communications do enough to help consumers understand these products. We observed some weaknesses in cost disclosures, which risk consumers not fully understanding the overall impact of fees on their investment,” it said — adding that firms should be providing risk warnings in clear, plain language, and should consider using pop-ups and in-app alerts to engage investors.
The FCA also found that most firms used generic tests to assess investors’ knowledge, which didn’t cover ETP-specific risks.
As a result, the regulator said “it’s unclear how [firms] could assess whether consumers had appropriate knowledge and experience to trade complex ETPs.”
Some firms had pass rates of 100% for these investor tests, “which could indicate tests were ineffective,” it noted — exposing consumers to possible harm.
Yet, the review found that most firms also weren’t able to identify the risk of investor harm.
“Few firms demonstrated processes were in place to take appropriate action when they identified potential for poor outcomes, such as poor trading behaviour or holding complex ETPs longer than recommended,” it said.
It also found that “Firms rarely monitored outcomes for consumers in vulnerable circumstances.”
Additionally, the regulator said that many firms weren’t adequately evaluating whether the products they sell are providing “fair value” to investors.
“This should include assessing all relevant costs and charges associated with the product, not just headline fees,” it said. It added that distributors should collect information from product manufacturers on the “structure, risks and costs” of their products to inform these evaluations.
“Regularly review the value your products provide,” the FCA told industry firms. “Where you identify issues or poor outcomes, we expect firms to take appropriate action, such as adjusting pricing or restricting access where necessary.”