Complex ETF Sales Under FCA Review for Consumer Protection

The Financial Conduct Authority (FCA) has launched a review into the distribution of complex exchange-traded products (ETPs), including leveraged and inverse strategies that reset daily. The review aims to assess whether firms offering these products on an execution-only basis are meeting their consumer duty obligations, specifically regarding the understanding of complex products and associated risks, and whether they deliver fair value to retail consumers.

The Financial Conduct Authority (FCA) has initiated a comprehensive review of the distribution of complex exchange-traded products (ETPs) to assess whether firms are meeting their consumer duty obligations. The review focuses on products that involve complex strategies, including leveraged and inverse ETPs that reset daily [1]. This multi-firm assessment will evaluate how firms support consumer understanding of these products, the associated risks, and whether they deliver fair value to retail consumers.

The FCA aims to publish the review and its findings by early 2026. The regulator's goal is to promote growth and help consumers make informed financial choices. The review comes at a time when the FCA is also considering the sale and distribution of crypto exchange-traded notes (cETNs) to retail clients [2]. While the FCA has proposed lifting the current ban on the sale of cETNs to retail clients admitted to UK recognised investment exchanges (UK RIEs), concerns have been raised about the proposed framework's restrictiveness.

21Shares, a leading issuer of crypto ETPs, has responded to the FCA's consultation, highlighting three key concerns: geographic limitation, asset concentration risk, and misclassification risk. The company advocates for a more inclusive and innovation-friendly approach that reflects international best practices [2]. By recognizing regulated cETNs from overseas exchanges, mandating a transparent eligibility framework for a broader range of cryptoassets, and confirming that cETNs are treated as Readily Realisable Securities (RRS), not Restricted Mass Market Investments (RMMIs), the FCA can create a more competitive and forward-looking regulatory regime.

The FCA's review underscores its commitment to ensuring that complex financial products are distributed responsibly and that consumers are well-informed. As the crypto market continues to evolve, the FCA's approach to cETNs and other complex ETPs will play a crucial role in shaping the UK's regulatory landscape.

References:
[1] https://www.investmentweek.co.uk/news/4516292/fca-launch-consumer-duty-focused-review-complex-etps
[2] https://www.globenewswire.com/news-release/2025/07/08/3111722/0/en/21Shares-Responds-to-FCA-Consultation-on-Retail-Access-to-Crypto-ETNs-Warns-Against-Overly-Restrictive-Framework.html