UK: FCA discussion paper on Expanding Consumer Access to Investments

Why should I read this?

The FCA’s discussion paper DP25/3 “Expanding Consumer Access to Investments” sets out its strategy for helping retail investors to understand the benefits of investing and to weigh up the risks and benefits of seeking higher returns over cash savings.  The FCA wants to help consumers have more confidence to take on the right level of investment risk for them.  This includes helping consumers understand what protections are available to them, as well as the limits to those protections.

The FCA is concerned about both the harms from consumers accessing inappropriate high risk investments and the investment deterrence effect of the fear of investment scams.

The FCA wants to encourage more retail investment by helping consumers better to understand risk taking and the opportunity cost of holding investible assets as cash.

The FCA’s aim is to introduce a regulatory framework that:

See our previous client briefings:

• UK – FCA Policy Statement on Consumer Composite Investments (CCI)
• UK: Targeted support for retail customers of financial services firms

What do I need to know about expanding consumer access to investments?

The discussion paper is part of a package of reforms intended to further the FCA’s secondary growth objective.  The reform package is intended to increase access to and the appeal of retail investment products in the UK, and includes:

InvestSmart

The FCA is spending £14m on its financial education campaign. 

InvestSmart takes the traditional conservative view that retail investors should pay down debts and build up an emergency fund of cash to the value of three month’s expenses before investing.  It is notable that platforms and advisers who have long given such advice have recently started considering whether the guidance to hold three months’ worth of expenses as cash poses a barrier to beginning to invest and inculcates potential investors into a cash-first mindset. They have started to consider whether many potential investors may benefit from commencing a ‘little and often’ approach to investing at the same time as building up an emergency cash fund.

The 2024 Financial Lives Survey (FLS) found that 61% of adults with £10,000 or more in investible assets hold all or most of their investments in cash.

Trading apps and digital engagement practices

The FCA notes the rise of trading apps and their uptake by younger demographics of investors.  Trading apps typically have gamification features that the FCA calls digital engagement practices (DEPs). These may include elements of potentially harmful gamification, e.g. trader leaderboards, push notifications and default amounts for investing and leveraging.  The FCA believes that design features used by some trading apps can influence consumer behaviour and potentially blur the lines between investing and gambling-like behaviours.

Notably, trading apps are the usual means to access contracts for difference (CfDs) and cryptocurrencies, both of which are higher risk investments and often associated with losses and investment behaviour akin to problematic gambling, e.g. chasing losses.  It was for these reasons that retail investors were banned from accessing the binary option form of CfDs.

The FCA warns that features on apps that exploit consumers' behavioural biases in a way that does not support good outcomes are inconsistent with the Consumer Duty.  However, the FCA also notes that, if used constructively, DEPs can play a positive role in helping consumers engage with investments, e.g. by providing in-app educational materials, help or feedback functions, and examples showing costs or returns over time.

The FCA is asking whether its regulatory treatment mitigates the risks associated with DEPs while supporting the positive use of DEPs and whether there are frictions or factors its regulations overlook.

Fractional investments

The FCA is keen to enable fractionalisation as a way to democratise assets and allow investors greater diversification.  It believes that fractionalised assets may become more popular among consumers if distributed ledger technology (DLT) and tokens can be used to make fractions easier to access and more tradeable.  However, the FCA is concerned that consumers may not consider the risks of fractionalised assets to be the same as the underlying reference asset and may thus be at risk of making investment decisions that do not match their risk appetite.  It therefore wants to ensure that investors receive the same level of protection in respect of fractionalised assets as they do when holding traditional non-fractionalised investments.

The FCA is asking how best fractional investments should be regulated.

Model portfolio services

The FCA notes that model portfolio services (MPS) have become increasingly popular on direct-to-consumer investment platforms and trading apps and predicts that they will become even more popular as firms take advantage of targeted support to suggest MPS strategies to suitable customers.  The FCA notes that it does not currently have a regulatory definition of MPS.

Consumers typically navigate to and access MPS through robo-advisers or interactive platforms.  A model portfolio is likely to look like a single managed product to a retail consumer and the FCA considers them to present similar risks and opportunities to investing in authorised funds.  The FCA notes that they share characteristics with funds of funds but are not subject to comparable conduct of business, product or disclosure requirements and there may be complex chains between distributors and manufacturers of MPS.

The FCA identifies two kinds of MPS:

The FCA is seeking views on the benefits and challenges of standardising disclosures between funds and model portfolios to enable consumers to compare the risks, costs and opportunities on a more like-for-like basis.  The FCA is concerned that MPS disclosures should be inconsistent and that MPS risk profiles are described with words such as “cautious” or “adventurous” but do not allow for direct comparison through standardised risk scores as with authorised funds.

The FCA’s usual approach is that similar risks should be subject to similar regulated outcomes.  The FCA is asking whether it should seek to standardise the regulation of MPS and align such  regulation with that for authorised funds insofar as possible.

Speculative products

The FCA notes that speculative products are regulated inconsistently, not least as the FCA has historically taken ad hoc steps to deal with speculative product risks as those risks have become apparent.

Speculative products include:

Link to the Policy Statement Policy PS19/18 “Restricting contract for difference products sold to retail clients”.

The FCA is asking whether a consistent regulatory approach should be taken to all speculative products.

Peer-to-peer (P2P) lending

Following a series of spectacular collapses of P2P platforms, the FCA classified P2P loans as RMMIs with effect from 9 December 2019 in policy statement PS19/14 “Loan-based (‘peer-to-peer’) and investment-based crowdfunding platforms: Feedback to CP18/20 and final rules” and the P2P market has since contracted from £6bn to £1.4bn pa.  P2P firms are not covered by the Financial Services Compensation Scheme (FSCS) and have low capital requirements.

The current P2P market has pivoted to balance sheet lending and remains an importance source of financing for small and medium sized enterprises (SMEs) and private assets. 

Currently P2P firms are subject to regulation including ensuring fair disclosure, appropriate product design and safeguarding client money.  The FCA thinks that the current regulatory treatment is appropriate and are asking if there are any further interventions it should pursue to protect consumers and ensure appropriate consumer access to P2P products.

Rebalancing risk through the regulatory framework

The FCA is asking more broadly how its regulatory framework could change to better support informed investing and risk taking, in particular:

• Are there inconsistencies and complexities in the regulatory framework which are creating barriers to consumers taking informed investment risk?
• Are there ways the FCA could better help consumers understand investor protections and the limits to those protections?
• What are the priorities for reforming the retail investing regulatory framework?

Financial promotion and distribution rules

The financial promotions regime originates from domestic legislation and rules, whereas the rules on distribution and selling were inherited from the EU.  As the relevant assimilated EU law provisions are replaced with Handbook rules, the FCA will consider how it may be appropriate to better align those rules with the needs of UK consumers, firms and markets.

Financial promotion rules set requirements on firms to support consumers in understanding the key risks and features of investment opportunities before they invest.  Distribution rules then set requirements related to who can gain access to investments and how.  Both sets of rules are set out in COBS.

Some financial promotion rules in COBS apply in most cases, e.g. all financial promotions must be fair, clear and not misleading However in 2022, new rules rationalised and enhanced the framework for the promotion of high-risk investments (see Policy Statement PS22/10 “Strengthening our financial promotion rules for high‑risk investments and firms approving financial promotions”).

Many investments are subject to their own tailored marketing rules.  Certain high-risk investments have also been subject to a complete ban on marketing to retail consumers.

The FCA is asking if their financial promotion marketing categories are consistently classifying investments based on their risk profiles and whether they achieve their aim of enabling informed risk-taking and mitigating harm.

See our previous client briefing, “UK's FCA sets out final policy changes to strengthen financial promotion rules”.

The appropriateness test

The appropriateness test requires firms to assess a client’s knowledge and experience, including their understanding of the risks associated with the investment, before facilitating an order for a non-advised sale.  The appropriateness test is intended to operate as a positive friction, helping to provide an important check and balance on the responsibility for decision making between the firm and consumer. However, the rules have been adapted over a long period of time and the FCA is concerned that they may have become confusing and outdated.

Different rules on appropriateness testing apply depending on the investment in question and the Consumer Duty complements the appropriateness test rules.

The FCA is asking whether the current rules achieve the right balance between mitigating the likelihood of consumers investing in products beyond their risk appetite and not preventing consumers from accessing appropriate higher-risk investment opportunities.

The Consumer Duty

The Consumer Duty’s rules and principles complement and interact with our other Handbook rules, including rules on financial promotion and distribution.

The FCA is asking whether there are ways it can streamline and/or clarify how their financial promotion and distribution rules interact with the Consumer Duty.

The Financial Promotion Order (FPO)

Exemptions contained in the FPO mean that FCA rules, including the requirement to be fair, clear and not misleading, do not apply to promotions to certified high-net-worth or self-certified sophisticated investors. Because these exemptions are in legislation, the FCA cannot make changes to them or supervise or enforce against any conduct which does not comply with its rules if the exemptions apply.  The exemption thresholds, which require the relevant individual to have an annual income of £100k or more, or £250k or more in net assets excluding primary residence and pension assets, have not been revised since July 2001.  These thresholds are far lower than comparable overseas jurisdictions.  No other jurisdiction allows for self-certification.

The FPO exemptions are increasingly inconsistent with other investor categorisations.  The FCA’s proposed new client categorisation thresholds are more robust than the sophisticated and high-net worth exemptions under the FPO.

The FCA is asking what it can do pending primary legislation to protect consumers from the harm caused by unauthorised financial promotions.

Next steps

The period for responses to the discussion paper closes on 6 March 2026.  Responses can be submitted on the form on the FCA website or by email to mailto:dp25-3@fca.org.uk. 

How Eversheds Sutherland can help

Our team have been advising on regulatory interpretation and product development for the fund management industry since the 1980s and we were at the forefront of the implementation of the UCITS KIID and PRIIPs. Our in depth understanding of the sector and experience with the practical implementation of those regimes mean that we are very well placed to guide you in complying with the changing regulatory environment.