Rebalancing Risk in UK Retail Investments: Key Themes from FCA Discussion Paper DP25/3

In a wide-ranging paper, DP25/3, the FCA is seeking views on how it may adapt its rules to reflect changes in how consumers can access and own investments, and what they can invest in. The paper considers where the regulatory framework could be ‘rebalanced’ either to help consumers recognise where they can take on more investment risk, or to protect consumers from risk exposure where the risk does not align with their attitude or tolerance. 

The paper is part of a package of four papers and statements released on the same day, aimed at reinforcing wholesale markets and empowering retail investors. Please see our related post here. 

The rationale behind this discussion paper is driven by several factors, including:

• Shifting consumer needs and investors lacking confidence: as changes to pensions place more responsibility on individuals, robust retirement saving is increasingly vital. Nevertheless, financial literacy remains low and many people lack confidence or understanding about investment risks.

• Market developments: investing has become easier and more accessible, with tools such as trading apps and non-advised platforms. New approaches like fractional ownership and fund tokenisation offer retail investors greater opportunities, and future advances like open finance may further expand access.

• Risk appetite vs. behaviour: the FCA observes that many financially vulnerable individuals invest in high-risk products - 80% of CFD customers lose money - while those with higher risk tolerance often keep excessive cash, missing out on long-term growth.

The FCA largely frames the discussion through two key perspectives – the investment landscape and the regulatory framework. 

The investment landscape 

• Trading apps and digital engagement practices: the market is seeing an increase in non-advised trading apps and the use of digital engagement features (described as features and design elements which reduce friction in the consumer journey and engage consumers, but may include elements of potentially harmful gamification e.g. leaderboards, push notifications and default amounts for investing). These attract younger users but can generate increasingly risky behaviours, notably in crypto and CFDs. Whilst firms must act in good faith under the Consumer Duty, feedback is sought on whether regulations adequately address app-related risks and if further consumer safeguards are required. 

• Fractionalisation broadens asset access; however, the FCA wants input on its associated risks and appropriate regulation. 

• Model portfolio services:  the paper treats model portfolio services (MPS) as an important and growing retail distribution channel which, from a consumer’s perspective, looks very similar to investing in a single managed fund, but which is not regulated in a comparable way. The FCA is seeking views on whether the treatment of MPS should be more consistent with that of managed products.

• Speculative products: products such as CFDS, leveraged exchange traded products, margin lending, structured products and crypto asset proxies - which may have similar risk profiles - face inconsistent rules in terms of risk information or frictions that are applied. The FCA asks how to harmonise oversight based on underlying risks rather than product type. 

• P2P lending is shrinking but remains important for SMEs; the FCA invites views on further interventions or unnecessary barriers.

The regulatory framework

• The FCA acknowledges that consumer access to investments and the consumer investment journey is shaped by regulatory perimeter and marketing regulation under FSMA, as FCA conduct rules. The FCA asks, amongst other questions, whether there are inconsistencies or complexities within the regulatory framework which are creating barriers to consumers taking informed investment risks. It also asks a series of questions focused on the following areas:

  • Financial promotion and distribution rules: recent reforms classify investments by risk. Under COBS 4, RMMIs and NMMIs face strict marketing controls and risk warnings. Some products fall outside these categories and have unique rules (e.g. COBS 22 which sets outs more extensive restrictions on complex investment products and bans mass marketing of certain products); feedback is sought on the effectiveness of the classifications.

  • The appropriateness test: the FCA asks whether changes to the current test are needed. The FCA contends that the test, which involves an assessment of a client’s knowledge and experience and their understanding of the risks associated with an investment in an execution-only sale, should not prevent consumers accessing higher risk investment opportunities where appropriate. Inconsistency in the application of the rules has been identified by the FCA (for example, the interpretation of non-complex financial instruments which enables certain investments to be excluded from the need to apply the assessment).  

  • The Consumer Duty: the FCA seeks views on how it can continue to clarify the way in which the Duty interacts with its rules, in particular in relation to the financial promotion and distribution rules. 

  • The Financial Promotion Order: the FCA is concerned that the financial promotion exemptions are outdated resulting in consumers being unprotected. For example, for high-net-worth individuals, the financial thresholds were last updated in July 2001. For ‘self-certified sophisticated’ investors, it has become easier to meet the self-certification criteria as access to unlisted instruments is increasingly prevalent due to crowd-funding. The exemptions are anticipated to become further at odds with other investor categorisations should the FCA’s proposed changes to the client categorisation regime proceed. Whilst the exemptions are a matter for Treasury, the FCA asks whether there are other interventions that it can make to mitigate harm.

Related initiatives 

This paper aligns with the FCA’s five-year strategy aimed at supporting consumers in navigating financial decisions. Related initiatives include:

• Consumer Composite Investments (CCI) rules – PS25/20, designed to improve communications about investment products.

• The Advice Guidance Boundary Review, which explores new ways of providing support in as alternatives to full advice.

• The client categorisation consultation – CP25/36, intended to clarify distinctions between wholesale/professional and retail clients.

• Streamlining regulations under the Consumer Duty, which simplifies disclosures and tailors FCA Hawndbook rules to UK markets, replacing assimilated EU law.

• Fund tokenisation consultation – CP25/28 and AI in targeted support – CP25/17

The FCA welcomes written feedback by 6 March 2026. It may hold a formal consultation after this period.