FCA claims its interventions have tackled harm in CFD market

Maria Nikolova

Following the introduction of leverage limits and other investor protection measures, total losses for retail clients of UK firms reduced by £77m between August and October 2018 alone, the regulator estimates.

The UK Financial Conduct Authority (FCA) has today published its annual Sector Views, a report that assesses the risks and potential harm to consumers across financial services markets.

The report stresses the remaining concern regarding high-risk investment products but the regulator notes that its interventions have tackled harm in the contracts for difference (CFD) market.

The FCA has intervened to address harm in the retail CFD sector by restricting how firms market, distribute and sell these products to retail consumers. Let’s recall that these restrictions limit leverage to between 30:1 and 2:1 by collecting minimum margin as a percentage of the overall exposure that the CFD provides. The measures also introduced closeout to a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on their CFD account.

Before the interventions (that is, the ESMA intervention that applied in the UK too beginning the summer of 2018, and the national measures the FCA introduced), there were an estimated 800,000 active client accounts holding a total of £1.5 billion in client money. The FCA estimated that, overall, retail clients lost £1.07 billion per year trading these products. Following the introduction of leverage limits and other investor protection measures, total losses for retail clients of UK firms reduced by £77 million between August and October 2018 alone.

The FCA estimates that its final rules will save retail consumers between £267 million and £451 million overall per year.

The regulator notes, however, that retail consumers are still at risk, and should be alert, as some CFD firms are encouraging retail clients to opt up to ‘elective professional status’ or contract with affiliated third country firms to circumvent the leverage restrictions introduced by the FCA.

High-risk retail investment products are exposing consumers to more risk than they can absorb – some of the highest risk products are often marketed directly to retail consumers with poor communication of the risks involved and implications that the investments are regulated, when this is not the case.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA and interim Chief Executive designate, said:

‘What is clearly apparent from the Sector Views, is that many of the harms we are seeing are created by a significant number of smaller firms we regulate or firms beyond our remit”.

Regarding investments in cryptoassets, the FCA estimates that, as of December 2019, fewer than 15 cryptoasset spot exchanges were headquartered in the UK, out of a global market of over 250. The FCA analysis suggests that these exchanges account for less than 5% of trading in this market. The regulator has warned of the risks of purchasing unregulated cryptoassets.

Read this next

Executive Moves

YourBourse hires 3 executives to transform development procedures

“Valter, Maria, and Sergey bring decades of experience in the FX industry to our company and I’m very excited how they will enable our ambitious growth plans.”

Technology

Baton adds OCC to collateral management network

“For the FCM community, this translates into ensuring money isn’t being left on the table. Our FCM clients are already using the Baton platform to move tens of billions of dollars of collateral every week.”

Retail FX

eToro buys US rival Gatsby to expand zero-fee trading offering

Israeli social trading and multi-asset brokerage company eToro has secured the regulatory nod to acquire no-fee trading app Gatsby as it aims to expand its business in the US.

Executive Moves

Genesis Global snatches CMO Jason Jhonson from metaverse company

The hire of Jhonson follows the announcement that Genesis raised $20 million in fresh funding from US banking giants, Bank of America, BNY Mellon and Citi.

Digital Assets

Celsius subsidiary GK8 integrates with Polygon while looking for new owner

“This integration affords our customers more agility in managing their crypto assets, which is key to creating new revenue streams.”

Digital Assets

BDO Italia audits Tether reserves to release monthly attestation

World’s largest stablecoin issuer, Tether has switched the accounting firm that audits the massive reserves that back its USDT token to BDO Italia, the 5th largest accounting firm in the world.

Retail FX

Libertex bags multi-year sponsorship deal with FC Bayern

Indication Investments Ltd, the operator of FX retail brand Libertex, has secured a lucrative sponsorship deal with German soccer giant FC Bayern.

Institutional FX

PrimeXM reports lower volumes for July as summer lull bites

PrimeXM has reported weaker trading volumes for July 2022, in line with other institutional and retail platforms that saw the activity of their clients dropped compared to a month earlier.

Retail FX

FCA warns of ATFX Global Trading / ATFXcoin

In its latest clampdown against the specific type of ‘clone fraud’, the Financial Conduct Authority (FCA) has warned local investors to watch out for a company called ATFX Global Trading / ATFXcoin.

<