FCA consults on retail CFD changes

The FCA is proposing stricter rules governing retail CFD products after identifying a number of concerns. It is worried retail customers are opening and trading CFD products that they do not adequately understand. A representative study found that 82% of clients in a representative sample of CFDs lost money on these products. The review also gave rise to concerns around AML compliance.

As a result, the FCA is proposing an array of measures intended to enhance consumer protection by limiting the risks of CFD products and ensuring that customers are better informed. These would include the introduction of standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all providers. There would be additional protections for inexperienced retail clients. Other measures include setting lower leverage limits for inexperienced retail clients, plus capping leverage for all retail clients and introducing lower leverage caps across different assets according to their risks.

FCA has also observed that binary bets are not transparent enough for investors to adequately value them, and have product features which are more akin to gambling products than investments. Treasury has already proposed to legislate to bring binary options within FSMA as part of its MiFID 2 preparations.

Consultation closes on 7 March 2017.

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