Risk Warnings Review sets out new framework for communicating investment risk

The Risk Warnings Review (commissioned by HM Treasury in July 2025 as part of the Leeds Reforms) has published its final report on supporting a new retail investment culture, alongside practical guidance for firms on disclosing risks in investment promotions. 

With a focus on improving investor understanding and stimulating confident participation, the Review team has been examining how risk warnings are currently used, how they are interpreted by consumers, and how firms apply them in practice – a core proposition is that protecting consumers should not mean deterring them from participating in capital markets. With the UK boasting the lowest rate of personal investment in the G7 and large numbers of people holding cash savings, the report is part of a wider collective effort of government, industry and the regulator to help more people harness the benefits of investing to achieve their long-term goals. With this in mind, the report sets out key findings on existing risk warnings, and recommends a series of changes, including encouraging firms to move away from standardised risk warnings such as “capital at risk” which are often misunderstood by consumers – and ignored by seasoned investors. The Review follows the FCA guidance on ‘Risk warnings for mainstream investments’ published in December 2025.

The report further sets out four principles for risk communication (crafted to align with the Consumer Duty) and it is against this backdrop that the Review’s recommendations should be read:

• Disclosure on risk should be contextualised and balanced - Ideally risk information should not be presented in isolation, nor should it exaggerate any upside or downside with investing. Rather than “risk warnings” the report  refers to ‘balanced explanations of risk’, which would normally form part of the main body of a communication – and may not be obviously identifiable as a “risk warning” (or course, such an approach does not supersede any FCA rules that require specific risk warnings to be provided).

• Clear and accessible language should be the basis for all communication with consumers - Clarity for all types of investors and potential investors is vital.

• Statements in communications with consumers should be proportionate, credible and effective

• Risk messages should be fitted to the consumer journey - Placing generic warnings too early, or giving them undue prominence, can discourage consumers before they have understood the basics. Poor sequencing and presentation turn compliance into a cause of disengagement.

The practical guidance published alongside the final report is intended to be used by firms as an evolving toolkit – showing what can be done to reform risk statements under the current regulatory framework and to help them move away from “capital at risk” style warnings in the near term. It sets out a Consumer Duty–led interpretation of the existing financial promotion rules and guidance, with a particular focus on COBS 4.2.4G, and COBS 4.5.2R (but does not introduce new requirements, prescribe specific wording or replace firm-specific policies particularly those in COBS 4). RAG tables and examples will be particularly instructive to firms (albeit these should not be used as definitive lists or examples of compliant/non-compliant templates. In preparing the guidance, the Review team have worked collaboratively with the FCA throughout this process to help firms feel confident in taking a bolder approach.

Review findings

The Review made six findings:

1. Risk communication goes beyond financial promotions - with consumers in practice encountering messages about risk across multiple stages of the journey - but there is no framework to ensure a consistent approach through the journey: Firms report that the fragmented framework governing risk disclosure makes it difficult to design coherent, journey-wide communications. This is further compounded by a combination of consumer perceptions of risk, standardised risk warning language and standalone compliance expectations (for example where consumers encounter the same or similar warnings repeatedly, often without additional context, this can reduce both engagement and trust – with repetition potentially signalling that investing is inherently dangerous, even when products are mainstream and suitable). The Consumer Duty in turn adds an additional consideration to the assessment of effective risk communication.

2. Consumer perceptions of risk act as a significant behavioural barrier to investing: Many consumers overestimate the downside risks of investing while underestimating the long-term risks of holding cash. Risk communication that focuses narrowly on potential loss, without context, therefore fails to support balanced decision-making between saving and investing.

3. Current standardised risk language is widely misunderstood and often counterproductive: Reliance on standardised phrases such as “capital at risk” has become a compliance standard rather than an effective tool for consumer understanding. Research shows that consumers exposed to this phrase are less likely to invest than those shown more balanced wording. At the same time, the report notes industry commentary indicating that the continued use of this language is driven less by belief in its effectiveness and more by a desire for regulatory certainty. Firms believe that moving away from established wording heightens the risk of regulatory scrutiny, even though evidence suggests that alternative approaches can be more effective in improving consumer understanding and decision making.

4. Savers and investors are more likely to comprehend short communications that balance information about risk and reward using clear, accessible language: Introductory wording was found to perform best when it avoids jargon, uses consumer-centred language, sets realistic expectations and balances the potential risk and reward.

5. Standalone compliance drives defensive behaviour: The requirement for each financial promotion to be compliant in isolation encourages firms to repeat full risk warnings at every touchpoint in the investor journey. The behavioural impact here is often negative, with consumers skimming or ignoring repeated warnings or inferring that the risks must be unusually high because of the volume and prominence of the disclosures, which reduces engagement rather than improve understanding. The Review finds that more effective outcomes would be supported by a shift towards proportionate, journey-wide compliance, where risk communication is assessed across the customer journey and placed where it is most meaningful, anchored in consumer understanding.

6. Firms require greater clarity and confidence to innovate responsibly: Firms want to improve their risk communications but fear regulatory or legal risk if they move away from established patterns. The findings therefore point to the importance of clarity, consistency, and alignment across policy, supervision, and dispute resolution. Without this, even well evidenced improvements are unlikely to be adopted at scale.

Recommendations

The Review identifies immediate actions that firms can take, together with a number of reforms for the FCA to potentially implement. 

What firms can do now under the current framework – a clear focus on outcomes and understanding

• Interpret existing disclosure requirements with a focus on consumer understanding and outcomes, rather than defaulting to standardised wording or defensive repetition.

• Replace “capital at risk” and other jargon or abstract phrasing with plain language that explains what investment risk means in practice (using consumer testing as a reference point). 

• Integrate explanations of risk into the natural flow of communications, alongside benefits and product features, rather than standalone warnings.

• Tailor the timing and prominence of risk communication to the stage of the consumer journey.

• Use consumer testing and monitoring as part of Consumer Duty compliance to evidence that the chosen approach supports informed decision-making.

Areas for further regulatory and supervisory change 

The report identifies the following areas of change for the regulator

• Amending the FCA’s financial promotion rules, specifically COBS 4 to support clearer, more contextual explanations of how investment risk works in practice.

• Reforming the standalone compliance principle to enable plain‑language explanations of risk and reward, rather than formulaic repetition, and to better align supervisory practice with outcomes‑based regulation.

• Ensuring that the impact of current guidance and any future reforms is reinforced through consistent application across supervision, enforcement and dispute resolution, including closer alignment between FCA policy, supervisory expectations and FOS decisions.

• Encouraging ongoing collaboration between industry and regulators in achieving shared objectives of more effective risk communication.

Next steps

In the short term it is intended that firms will utilise the output of the review and the practical guidance to interrogate their risk disclosures when applying the principles under the Consumer Duty as well as the FCA Handbook requirements on financial promotions and risk disclosure in a way that prioritises comprehension and decision quality, not generic repetition. Firms will need to consider whether and how to tailor the suggestions in this document and the accompanying guidance to their target market and products and carry out further testing where necessary.

In order to ensure that there is an opportunity to take stock of both the immediate change process and momentum for the wider changes outlined in the report, the Review also proposes two measures to facilitate progress: (i) establishing an Implementation Forum, including the FCA, to discuss practical issues arising from the guidance; and (ii) reconvening the Review Steering and Technical Expert Group in six months to review progress and discuss further actions (also taking into account other relevant developments including CCI implementation and progress in the Retail Investment Campaign). 

The press release from the Investment Association, which co-ordinated the Review, is available here.