Thousands of UK retail investors are losing significant amounts of money after being persuaded to give up essential consumer protections. According to the Financial Conduct Authority (FCA), many are opting to be treated as professional investors, which exposes them to far greater financial risks.

The regulator revealed that some social media influencers are also promoting high-stakes bets offered by unregulated overseas firms. In one case, nearly 90,000 people lost around £75 million over four years.

The Risks Behind CFDs

At the centre of the issue are contracts for difference (CFDs). These are complex financial products that let investors speculate on the price movement of assets without actually owning them. The use of leverage in CFDs can magnify both gains and losses, and the FCA estimates that around 75% of people who trade these products end up losing money.

When retail customers choose to be classified as professional investors, they lose key safeguards such as limits on leverage and restrictions that prevent them from losing more than their deposited funds. The FCA has raised concern that some firms are using pressure tactics to push people into accepting this professional status.

“Investors should be very wary of CFD firms that try to bypass our rules,” said Mark Francis, FCA’s director of sell-side markets. He added that many online promotions make unrealistic promises that can quickly turn into heavy losses.

Social Media and “Finfluencers”

The FCA is also targeting financial influencers, or “finfluencers,” who advertise investment opportunities without proper authorisation. These individuals often promise followers quick profits by copying trades or buying access to daily trading tips.

The regulator said it would continue to crack down on such illegal promotions, noting that the spread of misinformation online is fuelling risky investment behaviour among younger traders.

Regulatory Reforms and Industry Response

The FCA introduced tighter rules on CFD sales in 2019, including a 30-to-one leverage cap and restrictions that protect customers from losing more than they invest. It estimates that these measures have prevented around 400,000 people a year from losing between £267 million and £451 million in total.

However, the watchdog plans to review the criteria that determine who qualifies as a professional investor. Currently, individuals must meet at least two out of three conditions: having £500,000 in investable assets, completing 10 trades per quarter over the past year, or having at least a year of experience in financial services.

Consumer advocates worry that relaxing these rules could make retail investors more vulnerable. James Daley, head of Fairer Finance, said, “Today’s warning is exactly what we should be seeing from the regulator. Yet at the same time, government pressure to ease regulations could open the door to more high-risk selling.”

Leading CFD provider eToro welcomed the FCA’s statement. “We continue to prioritise investor education and have strict frameworks for those seeking professional status,” said Dan Moczulski, eToro’s UK managing director.