The UK Financial Conduct Authority (FCA) has released the findings of its latest review of smaller asset management and alternatives firms. The review is part of a wider supervisory strategy launched in 2022. The aim is to identify business models that may pose harm to consumers.

High-Risk CFD Sales Raise Concerns

Although the FCA did not name specific products, the findings are relevant to firms offering leveraged derivatives such as contracts for difference (CFDs). These products are considered high-risk. They are often marketed to retail clients and are subject to strict rules.

While most firms had processes to identify high-risk investments, some lacked the necessary procedures to ensure these products are sold only to appropriate investors. This remains a key concern in the CFD sector, where firms must classify clients correctly and provide clear risk warnings.

FCA Reviews Smaller Firms, Flags Governance Gaps

The review covered 410 firms, each managing less than £1 billion in assets, collectively overseeing £220 billion. The FCA focused on three areas: high-risk investments, conflicts of interest, and compliance with the Consumer Duty.

The FCA also found gaps in how some firms manage conflicts of interest. This issue was more common in smaller firms, where senior staff often held multiple roles. In many cases, this reduces oversight. CFD providers with vertically integrated models may face particular challenges and may need stronger governance.

Regarding the Consumer Duty, the FCA said most firms are making progress. However, some smaller firms have not fully implemented the new requirements. These rules demand that firms act in good faith, prevent foreseeable harm, and support customers in reaching financial goals.