Financial Conduct Authority
FCA confirms permanent restrictions on the sale of CFDs and CFD-like options to retail consumers
Following consultation feedback, the Financial Conduct Authority (FCA) is confirming new rules restricting the sale, marketing and distribution of CFDs and CFD-like options to retail customers.
The rules address harm to retail consumers by making the European Securities and Market Authority’s (ESMA’s) temporary restrictions of contracts for difference (CFDs) sold to retail clients permanent.
For CFDs and CFD-like options sold to retail clients, firms will be required to:
- Limit leverage to between 30:1 and 2:1.
- Close out a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on their CFD account.
- Provide protections that guarantee a client cannot lose more than the total funds in their CFD account.
- Stop offering monetary and non-monetary inducements to encourage trading.
- Provide a standardised risk warning, which requires firms to tell potential customers the percentage of their retail client accounts that make losses.
By including CFD-like options will ensure that firms do not try to avoid our measures by offering closely substitutable products, which we think pose the same risk of harm.
In response to feedback, the FCA have clarified the scope of our CFD-like option restrictions to achieve our intended policy outcome by:
- Excluding firms that sell CFD-like options in other jurisdictions, where the product is sold through an intermediary outside the UK.
- Excluding the sales and distribution activities of EEA firms outside the UK. These firms are still prohibited from actively marketing unrestricted CFD-like options to UK retail consumers.
If intermediaries sell, market, or distribute CFD-like options in or from the UK, they will be subject to FCA rules, meaning UK consumers will be protected.
Christopher Woolard, Executive Director of Strategy & Competition at the FCA, yesterday said:
'Our intervention follows evidence of firms aggressively marketing CFDs to the general public, meaning retail consumers are buying a product that isn’t appropriate for them. We saw firms offering CFDs with increasingly higher leverage, resulting in high proportions of consumers losing money. EU rules are temporary. The new rules maintain and strengthen protections for consumers.'
The rules apply from 1 August 2019 for CFDs and 1 September 2019 for CFD-like options.
Notes to Editors
- PS19/18: Restricting contract for difference products sold to retail clients.
- CP18/38: Restricting contract for difference products sold to retail clients and a discussion of other retail derivative products.
- ESMA statement(link is external) renewing restrictions on CFDs for a further three months from 1 May 2019.
- References to CFDs include financial spread bets and rolling spot forex products.
- CFD-like options includes options that have similar pay-out structure and risk features as CFDs, which are sold under a variety of commercial labels, including turbo certificates, knock outs or delta ones. These products were not included in ESMA’s temporary restrictions that have been in effect since 1 August 2018.
Latest News from
Financial Conduct Authority
FCA publishes annual report on the regulatory perimeter30/09/2020 10:25:00
The FCA has published its second annual perimeter report.
Update on Business interruption insurance test case appeals process29/09/2020 15:38:00
The deadline for parties to the FCA’s Business interruption insurance test case to file a 'leapfrog' application to appeal to the Supreme Court any aspects of the High Court’s Judgment was yesterday, Monday 28 September 2020.
Konstantin Vishnyak found not guilty of destroying documents29/09/2020 14:10:00
In a case brought by the Financial Conduct Authority (FCA), Konstantin Vishnyak has been found not guilty at Southwark Crown Court of one count of destroying documents in September 2018.
FCA institutes criminal proceedings against three former employees of Redcentric Plc25/09/2020 10:25:00
The FCA has begun criminal proceedings against three former employees of Redcentric Plc: Fraser Fisher, former Chief Executive; Timothy Coleman, former Chief Financial Officer; and Estelle Croft, a former finance director.
FCA launches consultation on the regulation of international firms24/09/2020 10:25:00
The FCA yesterday launched a consultation on its approach to the authorisation and supervision of international firms operating in the UK.
FCA sets out proposals to tackle concerns about general insurance pricing23/09/2020 10:25:00
The FCA yesterday published the final report of its market study into the pricing of home and motor insurance.
Christopher Woolard to chair review of unsecured credit market regulation17/09/2020 14:10:00
The Financial Conduct Authority (FCA) has announced that Chris Woolard will chair a review of the future regulation of the unsecured credit market, reporting to the FCA Board.
FCA proposes the next stage of support for consumer credit and overdraft customers17/09/2020 10:25:00
The Financial Conduct Authority (FCA) has announced proposals to ensure that firms provide tailored support for users of consumer credit and overdraft products who continue to face payment difficulties due to coronavirus (Covid-19).
FCA publishes Decision Notice against Corrado Abbattista for market manipulation16/09/2020 14:10:00
The FCA has published a Decision Notice today in respect of Corrado Abbattista, an experienced trader and a portfolio manager, partner and Chief Investment Officer at Fenician Capital Management LLP, for market abuse, imposing a financial penalty of £100,000 and prohibiting him from performing any functions in relation to regulated activity.