Expanding consumer access to investments: The FCA’s vision for retail market reform

The FCA’s latest discussion paper invites the industry to help shape the future of retail investment regulation. This is not a consultation on draft rules. It is something more significant, which is an open question about whether the regulatory framework that the UK inherited from the EU remains fit for a market that has fundamentally changed.

On 8 December 2025, the FCA published DP25/3 seeking views on how to “rebalance risk” in retail investment. The paper forms part of a broader package of publications including the final Consumer Composite Investments (“CCI”) rules (PS25/20 ) and the client categorisation consultation (CP2/36 ). Taken together, these represent the most substantial rethinking of UK retail investment regulation since the implementation of the Markets in Financial Instruments Directive (“MiFID”) II.

The case for change

The FCA presents a picture of a market where risk-taking is misaligned in both directions.
 
At one end of the spectrum, too many consumers hold too much cash. The FCA’s Financial Lives Survey found that 61% of adults with £10,000 or more in investable assets hold all or most of that sum in cash. Only 59% of those individuals understand that inflation erodes the purchasing power of cash over time. The opportunity cost of excessive caution is real and the FCA believes it is insufficiently understood. 

At the other end, consumers are taking risks that they may not appreciate. Some 26% of investors holding high risk products reported having very low or no willingness to take investment risk. The FCA’s research on contracts for difference (“CFDs”) found that approximately 80% of customers lose money. Fear of scams is deterring participation altogether with 34% of traditional savers citing scam concerns as a reason not to invest.
 
The regulatory framework was not designed for the market that now exists. Trading apps have made investing more accessible but have also introduced design features that may exploit behavioural biases. Fractional ownership and fund tokenisation are creating new forms of exposure. Products with similar risk profiles are regulated inconsistently depending on their legal structure rather than their economic substance.

Five areas under scrutiny

The paper identifies five areas where the FCA believes change may be needed.

1. Trading apps and digital engagement practices. The FCA’s research found that users of apps with five or more “digital engagement practices” (“DEP”) (such as leaderboards, push notifications and default investment amounts) experience significantly worse returns. The underperformance was attributable almost entirely to trading in cryptoassets and CFDs, which in the sample were available only on high-DEP apps. The FCA asks whether the Consumer Duty adequately addresses these risks or whether additional intervention is needed.
   
   
2. Model portfolio services (“MPS”). MPS have grown substantially on direct-to-consumer platforms, yet they lack a formal regulatory definition and are not subject to the same disclosure requirements as authorised funds. To a retail consumer, a model portfolio looks like a single managed product. The FCA questions whether it should be regulated as one.
   
   
3. Fractional investments. Fractionalisation makes investing more accessible but may also create risks that consumers do not appreciate. A fractional share structured as a property right to a portion of an underlying asset carries different risks from fractional exposure through a derivative. The FCA wants views on whether fractional investments should be treated consistently with their underlying assets or require tailored protections.
   
   
4. Speculative products. The paper identifies a range of products that pose similar risks but face inconsistent regulation: CFDs (subject to leverage limits and specific risk warnings), leveraged exchange traded products (“ETPs”) (not subject to the same restrictions despite similar amplification risk), margin lending, structured capital at risk products and cryptoasset proxies held through listed company shares. The FCA asks whether its produce-focused approach should be replaced with regulation based on the nature of the risk rather than the product label.
   
   
5. The appropriateness test. The rules in COBS 10, 10A and 4.12A were introduced under MiFID in 2007 and adapted in MiFID II in 2018. The FCA acknowledges that the definition of “non-complex” instruments is unclear, that firms have wide flexibility in designing assessments (leading to inconsistent standards) and that the rules may not reflect the current investment landscape. 

The Financial Promotion Order: a regulatory gap

The FCA reserves its strongest language for the exemptions in the Financial Promotion Order (“FPO”), which sit in Treasury legislation rather than FCA rules.

The current thresholds for the high net worth exemption (£100,000 annual income or £250,000 net assets excluding primary residence and pension) have not been updated since July 2001. International comparisons are unflattering. The equivalent thresholds in Singapore are approximately £240,000 income and £1.4 million in assets. In the United States, they are approximately £160,000 and £800,000. The UK is an outlier at the bottom of the range. 

The self-certified sophisticated investor exemption is also a concern. The criteria can be met simply by having invested in shares in an unlisted company, which is something that has become routine with the growth of crowdfunding. The FCA’s Financial Lives Survey found that only one in five adults with high-risk investments remembered being asked whether they were a high net worth, sophisticated or restricted investor the last time they invested. Evidence suggests that some consumers are being coached to self-certify without meeting the criteria.

The FCA cannot fix this directly of course. The exemptions are a matter for HM Treasury. However, the paper makes clear that without legislative reform, there will remain a gap between the protections available under the FCA rules and the exemptions available under the FPO. Firms relying on these exemptions should expect continued regulatory attention and should monitor HM Treasury’s response. 

What this means for firms

The discussion paper does not propose specific rule changes; it simply asks questions and seeks views. However, the direction of travel is reasonably clear. 

Firms operating trading apps should expect scrutiny of DEP and should consider whether their design choices are consistent with the Consumer Duty. The FCA’s research linking high-DEP apps to worse consumer outcomes provides a clear evidence base for future intervention if the industry does not address these concerns voluntarily. 

Firms offering MPS should prepare for possibly being brought into line with the disclosure and conduct requirements that apply to authorised funds. The new CCI framework provides an obvious template for standardised cost, risk and performance information.

Firms manufacturing or distributing speculative products should consider whether a shift to risk-based regulation would affect their product range. If the FCA moves towards regulating leveraged ETPs, margin lending and similar products consistently with CFDs, the commercial implications could be significant. 

Firms relying on FPO exemptions should not assume that these will remain unchanged. The gap between the FCA’s proposed client categorisation thresholds and the FPO exemptions is increasingly difficult to justify, and the FCA has made its concerns clear.

Engaging with the consultation

Responses to DP25/3 are due by 6 March 2026. The FCA has indicated that it may consult formally on specific proposals following this engagement. 

This is an opportunity to shape the regulatory agenda at an early stage. The paper asks 18 questions across topics ranging from DEP to the appropriateness test to the treatment of fractional investments. Firms with views on any of these areas should consider responding.
The FCA is explicit that it wants to encourage more retail investment through better informed risk-taking. However, it is equally explicit that some of its inherited rules may not reflect how markets now operate. The outcome of this discussion will determine the shape of UK retail investment regulation for years to come. 

For advice on how these proposals may affect your firm or assistance with responding to the discussion paper, please contact Jamie Gray. 

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