The Financial Market Supervisory Authority (FCA) released a report that highlights the potential risks and harms to consumers across financial services markets. The FCA has warned that small investors are being pushed into higher-risk products, where they are taking more risks than they can absorb. Are FCA CFD Market Interventions a Success?
19 February, 2020 | AtoZ Markets – The UK Financial Conduct Authority (FCA) today released its annual “Sector Views” report. It assesses the potential risks and harms to consumers in financial services markets. The report highlights remaining concerns about high-risk investment products, but FCA notes that its market interventions have tackled harm in the CFD market.
FCA CFD Market Interventions Estimate
According to the regulator, the sustained fall in interest rates continues to push investors to switch from safer assets to riskier assets. Those assets are such as CFDs, mini-coupons and even the arms of fraudsters.
In the report, the UK regulator points out that before the implementation of CFD Market Interventions, 800,000 active customer accounts were holding a total of £1.5 billion money. The regulator said in the report:
“We estimated that, overall, retail customers lost £ 1.07 billion a year trading these products. Total losses for retail customers of UK companies fell by £ 77 million between August and October 2018. It happened after taking leverage limits and other investor protection measures. We estimate that our final rules will save retail consumers between £ 267 and £ 451 million a year. “
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Negative Impact on Financial Consumers
The report defines the factors that cause harm and how this harm can evolve. The FCA has seen several positive corrections in the credit market. But financial lives data show that 7.4 million UK adults are over-indebted and view their financial commitment as a burden.
Insurance pricing practices continue to penalize loyal customers. The “loyalty penalty” in-home and motor insurance cost 6 million long-term consumers an additional £ 1.2 billion in 2018. The FCA is finalizing corrective measures following market interventions.
High-risk retail investment products expose consumers to more risk than they can absorb. Some of the riskiest products often market directly to retail consumers with poor communication of the risks involved and the implications.
Many new payment companies have been able to enter the market and grow rapidly. But some of their products do not offer consumer protection. For example, e-money services presented as “current accounts” are not covered by the Financial Services Compensation Scheme.
For investments in crypto assets, “get rich quick” and “fear of missing” are the main motivations of consumers who buy these products. FCA’s Executive Director, Christopher Woolard said:
What is clear that a significant number of small businesses creates many of these harms. We regulate those businesses or those are outside of our jurisdiction. “
The FCA estimates that less than 15 crypto-asset exchanges headquartered in the UK, in a global market of over 250 in December 2019. The FCA analysis suggests that these exchanges represent less than 5% of trade in this market. The regulatory authority has warned of the risks associated with the purchase of unregulated crypto-assets.
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