FCA warning spread betting providers in the UK to “have regard to the applicable rules and guidance in this letter and take action to ensure compliance” as a result of its recent industry review.
10 January, AtoZForex – The key financial regulator of the UK markets has sent out a letter to all the CEOs of financial services firms related to the CFD markets. The Financial Conduct Authority (FCA) has stated that it has “serious concern” in relation to the sale of “contracts for difference”.
FCA warning spread betting providers in the UK
The latest movement from the FCA has addressed the market of the popular contracts for different products. According to the online data, around 76 percent of CFD users lose money on them. Nevertheless, this fact does not stop investors.
The FCA has announced the findings of its review into the market for selling instruments. The watchdog claims that the market participants allow investors to make risky leveraged bets on a wide range of assets. The FCA has stated:
“The review uncovered areas of serious concern that we want to highlight to firms across the industry.”
Investors trading CFDs have an option to leverage their positions. In fact, some of the companies propose as much as 400 times leverage. This scheme can bring returns but can also increase losses. In its warning letter to CFD providers, FCA has urged firms to “consider the issues we raise”. FCA warning spread betting providers in the UK reads:
“We expect you to have regard to the applicable rules and guidance in this letter and take action to ensure compliance”.
FCA CFD Market Review Findings
Following on this, the regulator stated that the firms promoting the products to retail investors did not properly define their target market. The FCA also mentioned that these firms had failed due diligence processes and did not handle the conflicts of interest in a proper way.
The FCA went on to say that due to fact that some firms are paying their staff on a 100 percent variable basis, this “increased the risk of mis-selling since staff may feel pressured to achieve maximum sales targets, regardless of whether this delivers good outcomes for customers.”
Furthermore, the UK supervisor has highlighted one company, which conflicts of interest included the CEO working as a Head of Compliance. The regulator has added that “several distributor firms had problems with their processes and the criteria they consider acceptable when categorising clients as elective professionals.”
Overall, the FCA has studied 19 CFD providers and found out that only one of them “was able to demonstrate robust due diligence” checks of the intermediaries that were allocating the products to investors.
FCA warning spread betting providers in the UK mentions that the checks should have involved the inspection of the distributors’ competence in terms of selling CFDs. They also should have included the scrutiny of whether their target market is matching one of the product providers.
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