FCA consults on rebalancing regulatory settings to encourage retail investments

The Financial Conduct Authority’s (FCA) consultation reflects the ongoing governmental and regulatory push to encourage wider retail participation in private and public capital markets and the benefits of seeking higher financial returns over pure cash savings. 

In DP25/3: Expanding Consumer Access to Investments (DP25/3), the FCA reiterates its focus on helping retail consumers understand the benefits of investing. The FCA wants to understand how it can adapt its rules to better enable retail investors to weigh the risks and rewards in accessing investment products. This latest discussion paper lands following several proposals and policy changes in the last year to the retail investment landscape, including proposed changes to client categorisation rules (see our article) and the final Consumer Composite Investment (CCI) rules, which reform information disclosure requirements on investment products to consumers. 

DP25/3 seeks input from industry on the effectiveness of the overall regulatory framework in facilitating informed investments decision making by retail investors, with a view to: 

• improving the accessibility of suitable investments for consumers with differing financial resilience and risk tolerances;
• making access more frictionless and comprehensible, so that suitable consumers are not deterred by unnecessary complexity or process burdens; and
• where necessary, strengthening guardrails that prevent consumer harm, especially in connection with new or higher‑risk investments.

Consumer risks from changes to retail investing practices

The discussion paper covers a handful of market developments and seeks input on the effectiveness of the FCA’s regulatory framework in addressing related consumer risks, including:  

• Digital engagement practices (DEPs) on trading apps: Although trading apps can make investment more engaging, the FCA is concerned that the platforms tend to incorporate features and design elements designed to reduce friction in the consumer journey and may include elements of gamification. The FCA has asked for: (i) feedback on the extent to which its regulatory framework mitigates the risks associated with DEPs while supporting their positive use; and (ii) if there are other frictions or factors shaping retail investing consumer journeys which FCA regulations do not sufficiently take into account.
• Fractional investments and tokenisation: Whilst the FCA acknowledges fractionalisation and innovative forms of ownership can make investing more accessible and create opportunities for retail customers to gain diversified exposure, it wants to manage the potential increased risk derived from the structure of fractional investments. The FCA has asked for feedback on the types of risks that retail consumers take on when investing in fractional investments and how these investments should be treated under FCA rules.
• Model portfolio services (MPS): The FCA considers that to a retail customer, MPS likely appear similar to authorised funds. However, as model portfolios are not subject to comparable conduct of business, product or disclosure requirements as funds, the FCA is seeking views on how to clarify the expectations of MPS and authorised funds so that consumers can easily compare the products.
• Speculative products: Higher risk speculative products (such as contracts for difference, leveraged exchange traded products, margin lending, structured capital at risk products and cryptoasset proxies) are regulated inconsistently in the UK, with different risk information disclosures and levels of consumer access friction, despite the similar risk profile. The FCA seeks views on whether a more consistent regulatory approach is needed focused on the nature of the risk rather than product labelling.
• Peer-to-peer (P2P) lending: The FCA notes a contraction in retail investment in P2P lending products and seeks views on whether there are regulatory interventions which would enhance consumer confidence and address regulatory barriers that are limiting appropriate consumer access to P2P products. 

Rebalancing regulatory settings

The FCA also seeks views on how to use its regulatory framework to rebalance risk by better supporting informed investing and risk taking by retail investors. The discussion paper calls out for further review: 

• Financial promotion and distribution rules: As part of the FCA’s streamlining of the Handbook rules post Brexit, it is considering whether it may be more appropriate to better align the rules with the needs of UK customers, firms and markets. The existing framework is not straightforward with the financial promotions regime originating from domestic legislation and the rules on distribution deriving from EU law. The current suite of financial promotion and distribution rules (primarily found in COBS 4 of the FCA Handbook but supplemented with product specific marketing rules elsewhere) reflect a graduated level of restrictions and frictions depending on the category of investment. For example, mass marketing is not restricted for ‘mass market investments’ such as listed securities, in contrast to tighter rules applicable to ‘restricted mass market investments’ (RMMIs) such as qualifying cryptoassets and units in long term asset funds. The FCA is looking for feedback as to whether the existing marketing categories are consistently classifying investments based on their risk profiles.
• Appropriateness tests: The appropriateness tests under COBS operate as a key regulatory friction in the consumer journey, requiring firms to assess a client’s knowledge, experience and understanding of the risks arising from investments prior to facilitating an order for a non-advised sale. The FCA is seeking views as to whether the existing forms of appropriateness tests enable non-advised consumers to access an appropriate range of investments.
• Consumer Duty: The specific financial promotion and distribution rules are overlayed with the principles-based consumer protection obligations under the Consumer Duty, which is underpinned by concepts of reasonableness and mitigating foreseeable harm. In particular, firms must ensure that communications to consumers meet their information needs, are likely to be understood and equip them to make properly informed decisions. The FCA seeks feedback on how it can streamline or clarify how the financial promotions and distribution rules interact with the Consumer Duty.
• Financial promotions exemptions: The FCA is concerned that certain exemptions under the FSMA (Financial Promotion) Order 2005 (FPO) are too permissive allowing consumers to qualify for exemptions which leave them without basic consumer protections and at risk of harm. In particular the FCA is concerned about the exemptions for high net worth individuals and self-certified sophisticated investors. Set in July 2001, the FCA considers that the thresholds have not kept pace with inflation, noting that the UK income and asset thresholds for the high-net-worth exemption (£100k+ annual income or £250k+ in net assets excluding primary residence and pension assets) remain well below comparable jurisdictions. Although the FCA acknowledges that without legislative change to the FPO exemptions (a matter for the Treasury), there will remain a gap in its ability to protect consumers from misleading promotions, it is nevertheless seeking input on possible other interventions it can take to protect consumers from the harm caused by unauthorised financial promotions.

When does the consultation close? 

The FCA is accepting written submissions until 6 March 2026, after which it may consult further on the issues raised in the discussion paper.