UK FCA findings on complex ETPs

The UK Financial Conduct Authority (FCA) has published findings from its multi‑firm review on the distribution of complex exchange traded products (ETPs) to retail consumers, highlighting both good practice and areas requiring improvement under the consumer duty. These products are a small but growing segment of the wider ETP market. The FCA observed significant growth in retail trading of complex ETPs, including leveraged and inverse products, and assessed whether execution‑only distributors are meeting obligations relating to product governance, appropriateness testing, price and value, consumer understanding and outcomes monitoring.

While some firms demonstrated strong practices such as clearly defined target markets for products offered, conducted product‑specific appropriateness tests and were proactive in consumer engagement, the FCA identified systemic weaknesses. These included over‑reliance on manufacturers' target markets, generic and ineffective appropriateness tests, insufficient disclosure of product‑specific risks, vague fair value assessments and limited monitoring of consumer outcomes (notably around prolonged holding periods that may expose consumers to tracking errors). The FCA expects firms to strengthen controls, ensure robust testing, tailor communications to consumers and actively monitor and address poor outcomes, particularly for vulnerable customers. The review informs ongoing FCA policy work, including discussion paper DP25/3 and upcoming changes under PS25/20 on consumer composite investments.

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