FCA signals need to overhaul UK financial promotions regime

Elizabeth Budd of Pinsent Masons was commenting as the FCA published highly anticipated feedback on how the regulator can better support the UK’s rapidly evolving retail investment market.

The feedback statement (589KB / 19 pages PDF) comes ten months after the FCA published a discussion paper (588KB / 31 pages PDF) canvassing market views on consumer access to retail investment products, and on whether additional safeguards are needed to protect consumers that are increasingly turning to higher-risk or more speculative investments.

The statement covers five main areas: investor categorisation; financial promotions; pre-sale product and service communications; pre-sale assessments; and invitations to invest.

The FCA maintains that categorisation needs to operate effectively to ensure investors – whether retail clients or professional clients – receive the appropriate level of protection. It remains concerned that some retail investors may be inappropriately ‘opting up’ to elective professional status, thereby reducing the level of retail protections they receive.

The FCA has previously expressed concern about the low threshold for qualifying as a high-net worth investor under the UK’s Financial Promotion Order (FPO). The statement says a number of respondents indicated that ‘self-certification’ is too “easy to abuse” and that the current thresholds are outdated. The regulator said it supported proposals for legislative change in this area and would continue to engage with HM Treasury to address the market’s concerns.

The paper also examines inconsistencies in the financial promotions regime amid concerns that some diverse long-term investments such as long-term asset funds or P2P lending are being conflated with speculative products thereby running the risk of some consumers being steered towards such high-risk products, exposing them, often unknowingly, to greater risk as a result.

Some respondents also expressed a view that the regulator should take a more “product-specific approach” to certain speculative products, including structured capital at risk products and speculative illiquid securities. The FCA says it will review its financial promotion rules for high-risk investments to determine if these rules treat products with similar risks consistently. It also confirmed plans to consult stakeholders in early 2027 on potential changes to its rules and guidance on risk information for mainstream investments.

The FCA also used the feedback statement to draw attention to its ongoing work to help consumers differentiate between potential investments to help them make appropriate investment decisions. These include improvements to product disclosures for packaged products, including through the introduction of consumer composite investments (CCIs).

The CCI regime will come into full force on 8 June 2027, and the FCA plans to publish its final rules on simplifying consumer investment disclosures by the end of 2026. The final findings of its ongoing review of model portfolio service (MPS) disclosures are expected in the first quarter of 2027.

The statement also looks at respondents’ views on ‘appropriateness assessments’ which apply to non-advised sales of complex or high-risk financial products, such as cryptoassets. Following respondent feedback that raised concerns of weaknesses inherent in the current framework, the regulator confirmed it will conduct a review of this area to inform its future policy approach.

Budd, a financial services regulation expert at Pinsent Masons, said the feedback statement was in keeping with “the FCA’s stated support for encouraging retail clients into investments” but importantly also recognised “that there is a significant difference between mainstream ordinary investment risk and speculative gambling-like investment risk.”

Budd said the feedback confirms the FCA’s ongoing review of risk statements is aimed at proportionality. “More dire warnings are not what is needed,” she said. “Rather, balanced, engaging, understandable and useful language is being encouraged with consultation on what this might look like in the new year.”

Despite the FCA introducing a number of changes in recent years to boost customer protections in financial services, including overhauling financial promotion rules for cryptoassets, Budd said the feedback indicated overwhelmingly that the overall regime is ripe for reform. “The regime does not align with other regulatory hurdles in the UK and the hurdle for what amounts to being a high-net worth individual has not been effectively raised in over 25 years,” she said. She added that any revisions would require HM Treasury input and any increase would “take time to implement”.

Although Budd said the regulator is keen to encourage investment in light of the proposals on the FPO exemption, as well as recently introduced restrictions around approving financial promotions, she warned in practice that “a sudden leap” in threshold would likely make “it harder to fundraise at the SME end of the market.”

The feedback statement also acknowledges the increasingly significant role of artificial intelligence (AI) in consumers’ investment choices, citing the recent Mills Review, which identified that 1 in 5 UK adults “are already open to AI making decisions for them, with demand strongest when choices feel complex or high stakes.”