FCA Warns Against Sale of Investment Products Similar to CFDs

In the light of the latest developments coming from the key regulator of the EU, ESMA, the FCA warns brokerages across the UK against sale of investment products similar to CFDs.

1 August, AtoZ Markets – The financial regulator of the UK markets, the Financial Conduct Authority (FCA) has published a statement concerning the local brokers. The statement addresses the matter of selling high-risk speculative investments to retail clients in accordance to the ESMA’s decision on contract for difference (CFD) products. 

ESMA Temporary Measures are Effective from 1 August 2018

In June 2018, the European Securities and Markets Authority (ESMA) has adopted temporary measures to limit the sale, distribution and marketing of contracts for difference for clients. The measures are applicable across the EU starting from today, the 1st of August. These rules restrict Forex and CFD leverage to 30x on major Forex pairs. The lower leverage caps on products on Index CFD and cryptocurrencies are also effective now. 

The FCA has noted that it fully supports ESMA’s initiative, which is aiming to increase the protection level for retail investors. 

The official announcement from the UK watchdog states:

“In common with other regulators across Europe, we know that other products can create the same kinds of risks to consumers as CFDs, particularly where they expose the investor to significant leverage. ESMA’s recent Q&A on its product intervention also highlighted these risks. These substitute products could be sold under a variety of labels but share common features with CFDs and these features may cause large trading losses to retail clients.”

FCA Warns Against Sale of Investment Products Similar to CFDs

The regulatory body has further stated that it is concerned that brokers might consider bypassing ESMA’s measures by selling other similarly complex products to retail investors. However, the Q&A document from ESMA clarifies that firms “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client” for products that are similar to CFDs.

The UK regulator has further stated that it will work with ESMA and other EU watchdogs to oversee and examine the sale of these alternative products to retail clients. In case the UK FCA finds evidence that these products are posing similar risks, it will work with ESMA concerning this matter. If necessary, the regulator is planning to support further action to extend the scope of the guidelines. 

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