FCA delays implementation of new rules for CFD firms

Maria Nikolova

The delay reflects the “progress in ESMA’s own consideration of the use of its product intervention powers in this area”, the UK regulator said today.

UK firms that offer CFDs to retail customers will have to wait for the new conduct rules on which the Financial Conduct Authority (FCA) has been working, as the UK regulator has just announced that it is delaying making these rules final.

In an announcement, out earlier today, the FCA explains the delay with a statement by the European Securities and Markets Authority (ESMA) on its consideration of product intervention measures under Article 40 of the Markets in Financial Instruments Regulation (MiFIR). ESMA’s product intervention powers can only come into effect from January 3, 2018 at the earliest.

ESMA’s statement notes that it is in the process of discussing the possible use of its product intervention powers under Article 40 of MiFIR, the possible content of any such measures, and how they could be applied. ESMA also confirms that the measures being discussed for CFDs, rolling spot forex and binary options include leverage limits, guaranteed limits on client losses, and / or restrictions on the marketing and distribution of these products.

“Given the progress in ESMA’s own consideration of the use of its product intervention powers in this area, the FCA has decided to delay making final conduct rules for UK firms providing CFDs to retail clients, pending the outcome of ESMA’s discussions.”

Any decision to use product intervention powers under Article 40 of MiFIR would have to be approved by ESMA’s Board of Supervisors, the FCA notes.

The UK regulator will continue to engage with ESMA with regards to investor protection. In case of a significant delay to possible ESMA measures, the FCA says it would reconsider making final rules at a domestic level in the first half of 2018.

The UK regulator will conduct further policy work in light of consultation feedback. It expects this to include a further request for additional data from a sample of UK firms over the next months. Information received during the consultation period suggests that lower leverage is associated with better client outcomes across a number of firms. However, according to the FCA, more detailed and comparable firm data are required to provide clarity on the impact of different factors on individual client outcomes. These data and analysis are intended to inform any future policy decisions, and provide a basis on which we can evaluate the impact of any prospective rules.

In December last year, the UK FCA unveiled a set of stricter rules for firms selling CFD products to retail customers in order to improve standards across the sector and ensure consumers are appropriately protected. The regulator said it had serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved, and as a result can incur rapid, large and unexpected losses. The FCA referred back then to an analysis of a representative sample of client accounts for CFD firms which had found that 82% of clients lost money on these products.

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