UK Regulator Warns of Risks in Selling Complex Investment Products
The UK Financial Conduct Authority (FCA) has recently issued a report warning that the sale of complex ETP products to retail investors poses potential risks. The report highlights inadequate risk disclosures and weak client assessments, which may leave investors exposed to risks they do not fully understand.
Review Reveals Varied Industry Practices
This review covered financial institutions of different sizes. The FCA found that although some companies adopted rigorous market targeting strategies, including strict client knowledge assessments, clear target market definitions, and post-sale monitoring, many others relied on superficial checks and weak disclosures that failed to help retail investors grasp the actual risks involved.
Complex ETPs Carry Significant Risks
While complex ETPs represent a small portion of the overall market, their risks are substantial. These products often use leverage or inverse strategies and may be linked to crypto assets through exchange-traded notes (ETNs). Although they can amplify returns in favorable market conditions, they can also accelerate losses during periods of high volatility or prolonged holding.
Strengthening Investor Protection is Crucial
The FCA emphasized that firms must strictly adhere to the Consumer Duty when offering these products, ensuring investors make informed decisions. The regulator also noted it will continue to monitor market developments and consider further actions to protect retail investors.