Find out about our key findings, good practice and areas for improvement.
In July 2025, we launched our multi-firm review into the distribution of complex exchange traded products (complex ETPs), such as those using leveraged and inverse positions, which reset daily.
Find more details on the features of complex ETPs in section 5.
These products are a small but growing segment of the wider ETP market. Of the firms we surveyed, the number of consumers trading complex ETPs between July 2024 and July 2025 increased by 23% compared to the previous year, reflecting broader trends in retail investing. In particular, 3× leveraged ETPs are popular on UK exchanges, including the London Stock Exchange (LSE). For example, in December 2025[3], 3 of the top 10 most traded ETPs on the LSE – including both complex and non-complex products – featured 3× leverage strategies, illustrating the demand for these instruments.
Our aim was to assess whether distributors offering these products on an execution-only basis are meeting Consumer Duty obligations.
This work is part of our broader strategy to help consumers better navigate their financial lives. It also supports our work to enable a robust investment culture, and to promote responsible growth in retail investment markets.
As well as considering the findings below, we encourage firms to engage with our Discussion Paper DP25/3[4] on expanding consumer access to investments, alongside our wider publications, including our recent Policy Statement on Consumer Composite Investments[5].
Who this applies to
This publication will help firms that distribute complex ETPs and other complex instruments to retail consumers understand our expectations, and what we consider to be examples of good practice.
1. Why we did this work
Complex ETPs are increasingly accessible to retail consumers, often through low-cost digital platforms and execution-only services. However, consumers may not always fully understand these products.
Our 2024 Financial Lives Survey[6] found that use of non-advised platforms almost doubled in 4 years, rising from 5.9% in 2020 to 11% in 2024.
At least 3% of UK adults – around 1.6 million people – now use a trading app.
It is therefore vital that firms make sure consumers understand the features and risks of complex ETPs, to enable them to make informed decisions.
2. What we looked at
We reviewed a sample of platform and wealth management firms of different sizes. All offer complex ETPs to retail consumers on an execution-only basis.
Our focus areas
We assessed how distributors meet Consumer Duty expectations relating to:
Products and services
How firms identify their target market for complex ETPs and make sure they’re only distributed to the intended target market.
Price and value
How firms consider whether complex ETPs provide fair value to consumers.
Consumer understanding
How firms make sure features, risks and costs associated with complex ETPs are disclosed to retail consumers.
Outcomes monitoring and consumer support
How firms monitor outcomes for consumers trading complex ETPs and their approach to tailoring support.
3. What we found
Here we highlight examples of good practice observed and areas for improvement.
Section 3.2 on price and value only includes observations on areas of improvement.
3.1. Products and services
Target market and distribution
To assess how firms meet their obligations to identify and distribute complex ETPs only to the intended target market, we focused on the requirements set out in the Product Intervention and Product Governance Sourcebook (PROD), specifically the PROD 3 rules.
Key risk: Weak target market assessments and poor distribution controls mean consumers outside the intended target market may have access to products that might not meet their needs, which could lead to poor outcomes.
Examples of good practice
Some firms clearly defined the target markets for each product offered. For example, the target market for complex ETPs included consumers with:
- High tolerance for risk.
- Prior experience trading complex ETPs.
- Sufficient capacity for loss.
Some firms set out clear characteristics of consumers who would not fall within the target market (for example, consumers with low financial resilience or poor digital skills) and proactively restricted access for them.
Some firms used both manufacturer and firm-level data to further refine their target market, conducting regular reviews of the target market and distribution arrangements.
Areas for improvement
Many firms were reliant on the manufacturer’s target market, sometimes defining their target market as simply ‘retail consumers’ without considering product complexity or consumer vulnerability.
There were often insufficient controls in distribution arrangements, with firms relying solely on the appropriateness test as a control. These controls were often not robust enough to have the desired effect.
Some firms didn’t review their processes regularly to identify and prevent distribution to consumers outside the intended target market.
What we expect
Distributors should define and regularly review their target market for complex products at a granular level. In determining the target market, distributors should use information obtained from manufacturers and information they have on their own customers.
Firms must also be able to evidence they’ve given sufficient attention to their distribution strategy to make sure products are only distributed to the intended target market and take proactive measures where harm has been identified.
Appropriateness testing
Approximately 70% of consumers from the firms we reviewed passed appropriateness tests (APT) first time. Of the firms we reviewed who use binary questioning to ask consumers to self-assess their knowledge, first time pass rates were typically higher.
Within some wealth management firms, relationship managers assess appropriateness based on their understanding of their consumers. Without appropriate controls in place, this could potentially lead to inconsistent outcomes.
Key risk: Failure to test consumer knowledge robustly means consumers may not understand the risks and features of investing in complex ETPs, potentially leading to poor outcomes and significant losses.
Examples of good practice
A small number of firms used product-specific tests for complex ETPs. This allowed firms to assess consumer knowledge and experience of the features and risks unique to complex ETPs.
Effective tests required a high threshold of correct answers to pass, alongside scenario-based questions and meaningful frictions such as lockout periods and limits on retaking the test.
Some firms required consumers to retake the test periodically to make sure knowledge remained up to date. They provided educational materials to consumers who failed.
Most firms did not allow a consumer to trade complex ETPs unless they passed the test.
Areas for improvement
Most firms used generic tests that did not cover ETP-specific risks. So, it’s unclear how they could assess whether consumers had appropriate knowledge and experience to trade complex ETPs.
Some firms had pass rates as high as 100%, which could indicate tests were ineffective.
Half of firms reviewed had tests that consisted of simple binary yes/no questions about risks associated with complex ETPs to test consumer knowledge. This resulted in consumers self-declaring their understanding rather than it being actually tested through the questioning.
What we expect
Firms should produce robust, product-specific appropriateness tests (APTs) in line with the requirements of COBS 10A[7], which sets out the rules for assessing appropriateness when distributing complex products to retail clients.
Firms should also consider how their approach to testing appropriateness aligns with the Consumer Duty’s cross-cutting rules to act in good faith and avoid foreseeable harm.
Adequate testing and meaningful frictions are key to mitigating risk of harm and ensuring complex ETPs are only distributed to the intended target market.
Reliance on generic tests or self-declaration of knowledge risks exposing consumers to harm.
3.2. Price and value
Fair value assessments
Some firms clearly met our expectations, with detailed assessments and regular reviews of whether the complex ETPs they distribute provide fair value. However, others didn’t show a good understanding of their obligations as distributors.
Key risk: Firms may fall short of what we expect, if they fail to assess all relevant information when determining fair value, or to take timely action when evidence shows products no longer offer fair value.
Areas for improvement
We saw examples where firms' fair value assessments lacked detail, focusing on their service fees as a distributor without assessing the impact of product costs.
Some firms didn’t appear to consider manufacturers’ assessments as part of their analysis of fair value.
Other firms placed weight on information from manufacturers but didn’t appear to analyse it alongside their distribution service costs to determine the overall impact of costs on fair value.
What we expect
Distributors of complex ETPs to retail consumers on an execution-only basis must consider the fair value assessment when deciding the distribution strategy for complex ETPs. This should include assessing all relevant costs and charges associated with the product, not just headline fees.
To inform your assessment, gather and consider information from product manufacturers – such as details on product structure, risks and costs.
Regularly review the value your products provide. Where you identify issues or poor outcomes, we expect firms to take appropriate action, such as adjusting pricing or restricting access where necessary.
3.3. Consumer understanding
Communication and risk disclosures
We assessed whether firms provide clear, timely and effective information so consumers can understand the unique features and risks associated with complex ETPs before trading.
Key risk: We’re concerned about whether firm communications do enough to help consumers understand these products. We observed some weaknesses in cost disclosures, which risk consumers not fully understanding the overall impact of fees on their investment.
Examples of good practice
Clear, plain language risk warnings, supported by in-app pop-ups, alerts and educational materials at key points in the consumer journey to engage consumers and aid understanding, with regular testing to ensure communications remain effective.
Proactive ‘check-ins’ for consumers holding complex ETPs beyond recommended holding periods, may prompt consumers to review their holdings and revisit educational materials.
Areas for improvement
Reliance solely on manufacturer key information documents (KIDs) without providing additional, tailored explanations of key risks – such as leverage, volatility, tracking errors and bid-offer spreads – at relevant points in the consumer journey.
Consumer information was not appropriately tested for readability or understanding.
Failure to aggregate product and service costs and relying on consumers reading the KID to understand how charges would impact their investment.
Few firms highlighted the risks of holding leveraged/inverse ETPs beyond the recommended holding period (typically 1 trading day), which could expose consumers to tracking errors due to the impact of daily price resets. This concern was compounded by a lack of active monitoring of consumer holding periods by some firms.
What we expect
Firms must disclose risks in a way that is clear, timely and tailored to the complexity of each product. Communications should enable retail consumers to understand the unique features and risks of complex ETPs before trading. Firms must also supply aggregated information about costs and charges to consumers in good time.
Firms should proactively meet the information needs of consumers, and equip investors to make effective, timely and properly informed decisions. Firms should also be aware of the incoming new rules set out in PS25/20[8] for Consumer Composite Investments, which will replace KID and key investor information document (KIID) disclosures. These rules build on the Consumer Duty and place a greater onus on distributors to highlight any product-specific risks (for example, the potential impact of holding complex ETPs longer than the recommended period).
Firms should regularly monitor the impact of their communications, in line with the Consumer Duty rules and reinforced by PS25/20. This includes assessing whether consumers genuinely understand the risks and features of the products they are offered.
We encourage firms to review our recent policy statement on Consumer Composite Investments (PS25/20), which introduces new rules to support consumer understanding, and to consult our risk warnings for mainstream investments[7] webpage.
These resources set out our expectations for clear, effective communication of investment risks and support firms in meeting the evolving standards for mainstream and complex investment products.
3.4. Outcomes monitoring and consumer support
We assessed whether firms:
- Actively monitor consumer outcomes for complex ETPs.
- Intervene when poor outcomes or characteristics of vulnerability are identified.
- Provide effective support.
Data from the 11 firms we surveyed showed that 82% of 531,007 trades in complex ETPs placed between July 2024 and July 2025 were held for longer than the manufacturer’s recommended holding period of 1 day. Some consumers may intentionally hold these products longer as part of their investment strategy. But others may not fully understand the recommended holding periods, or the risks involved. Complex ETPs that are held longer than intended are particularly susceptible to tracking errors due to daily price resets, increasing the potential for unexpected losses.
Key risk: Without effective, product-specific monitoring and intervention, firms risk failing to identify poor consumer outcomes.
Examples of good practice
- Regular analysis of management information (MI) and key performance indicators (KPI) to assess consumer outcomes including complaints, holding periods and trading patterns.
- Proactive contact with consumers holding leveraged ETPs for longer periods to understand the reasons and mitigate poor outcomes.
- Controls to identify and support consumers in vulnerable circumstances, offering tailored communications and support channels.
Areas for improvement
Most firms monitored outcomes at a service level, with little focus on complex ETPs.
Few firms demonstrated processes were in place to take appropriate action when they identified potential for poor outcomes, such as poor trading behaviour or holding complex ETPs longer than recommended.
Firms rarely monitored outcomes for consumers in vulnerable circumstances. Many firms were also reliant on consumers self-disclosing vulnerability to identify those with characteristics of vulnerability.
Some firms did not fully use the information they already held about their consumers and their trading behaviours. In some cases, firms indicated that limitations in the data available to them – such as gaps in understanding consumer circumstances – made it challenging to monitor outcomes effectively. We don’t expect execution-only firms to collect information about consumers’ accounts or financial positions held elsewhere as they’re not subject to the requirements of COBS 9A[8]. But firms should make best use of the data and insights they do have to identify and address potential risks and poor outcomes.
What we expect
Firms must actively monitor consumer outcomes and take action where poor outcomes are identified. We expect firms to be flexible in how they offer support for consumers in vulnerable circumstances. High-level, or complaints-only monitoring may not be enough to support good outcomes.
4. Next steps
The insights from this review have informed our ongoing policy work and have helped shape the questions set out in our recent Discussion Paper (DP25/3)[9] on expanding consumer access to investments.
We invite stakeholders to engage with this discussion paper. Your feedback will be invaluable in helping us develop a regulatory approach that supports innovation, promotes informed decision-making, and safeguards consumers in a rapidly evolving market.
5. Background
5.1. What are ETPs?
Exchange traded products (ETPs) are investments designed to track the performance of something else such as an index, group of assets or a single asset like gold.
ETPs fall into 3 broad categories:
- Exchange traded funds (ETFs) – track groups of securities or indexes like the S&P 500 or FTSE 100.
- Exchange traded commodities (ETCs) – track commodities like oil or gold.
- Exchange traded notes (ETNs) – a type of unsecured debt instrument.
Some ETPs use complex strategies involving derivatives, which makes them higher risk.
Features that make an ETP complex include:
Leverage
This means the product amplifies gains and losses relative to the underlying asset. For example, a 3× leveraged ETP aims to deliver 3 times the daily return of its benchmark. This increases volatility and risk – small market moves can lead to large swings in value.
Short or inverse strategies
These are designed to deliver the opposite return of the underlying asset. If the underlying asset falls by 1%, an inverse ETP aims to rise by 1%. Many inverse ETPs also use leverage, which amplifies both gains and losses.
Daily resetting
Leveraged and inverse ETPs typically reset their exposure daily. This means returns compound each day rather than over the entire holding period.
If held longer than 1 day, performance can diverge significantly from the expected multiple of the underlying index, especially in volatile markets, and is known as a 'tracking error'.
Tracking errors can cause value decay over time even if the market moves in the investor’s favour.
5.2. Crypto ETNs
We’ve recently lifted the ban on retail access to certain crypto ETNs listed and traded on a UK recognised investment exchange. This will broaden the range of complex ETPs available to retail consumers.
Crypto ETNs are classed as restricted mass market investments and subject to stricter rules.
We’d encourage any firms thinking about offering crypto ETNs to retail consumers to review our recent news story[10] and inform their FCA supervisor of their plans.