FCA has written to the CEOs of firms that offer CFDs reminding them about the potential for substantial losses to be suffered by those who invest in them. FCA says around 80% of customers lose money when investing in CFDs and is concerned at the number of firms, often from overseas, that offer CFD services and do not deliver good customer outcomes. It has already taken several actions to stop firms marketing CFDs in the UK and will continue where needed.
FCA has outlined its expectations, and highlighted areas where it sees poor practice. It notes that CFD firms range from substantial providers to smaller firms focused on FX CFDs and understands that not all of its observations will be relevant to all firms. It expects the firm’s Board or ExCo to consider which risks are applicable and how to address them. It expects all firms to have agreed actions and next steps by January.
FCA has been concerned about:
- scam/churn activities – specifically carried out by firms in the TPR – FCA notes that of the 100 CFD firms that entered the TPR, 50 have exited the UK market already, some following enforcement action, and FCA has intervened to cease the business of a further 16. As of now, only one has been authorised, while all but one of the others is in supervised wind-down;
- circumvention of FCA rules, either by inappropriately opting customers up to elective professional status, or illegally redirecting customers to firms outside the UK who operate outside the provisions of the overseas persons exclusion; and
- unauthorised affiliates and introducers carrying out inappropriate marketing.
FCA notes that CFD trading inherently involves conflicts of interest, and its expectations on how firms should be assessing these. Also, of course, CFD firms will need to assess their business against the Consumer Duty.