Regulation  

FCA hands over spread betting regulation

FCA hands over spread betting regulation

The Financial Conduct Authority has put on hold its plans to take action against firms selling contracts for difference after the European regulator stepped in.

For the past few months the FCA has been investigating these products after it noticed an increase in the number of firms offering CFD products, including spread bets and rolling spot foreign exchange products, and raised concerns retail investors are trading products they do not understand.

The FCA has said it still has “serious concerns” about this area but has said it will hold back from making final conduct rules while the European Securities and Markets Authority considers its own interventions.

It added that some of the measures Esma, the European regulator, is considering are “broadly similar” to those under consideration by the FCA.

Should there be delays to Esma’s action, the FCA will reconsider making final rules in the first half of 2018.

Following its investigation, the FCA came across a number of concerns, including inadequate assessments of prospective clients’ knowledge, inadequate risk warnings to prospective clients who fail appropriateness assessments and poor oversight.

The FCA said: “In particular, we are concerned that these complex, speculative products are reaching a wider target market than is likely appropriate.

“As such, the quality of firms’ policies and procedures in relation to client on-boarding and assessment of appropriateness will remain a key focus for us.

“Our work in this area will continue and we will consider enforcement investigations or other action as appropriate, including in relation to firms that were included in the review.”

The FCA’s analysis of client accounts for CFD firms found that 82 per cent of clients had lost money on these products – and there is evidence these losses tend to be higher when sold on an advised basis rather than a non-advised basis.

The average result per client was a loss of £2,200.

Several other member states of the European Union have already introduced restrictions on the sale of CFD retail products after uncovering similar issues – the French regulator found 90 per cent of investors had lost money.

damian.fantato@ft.com