FCA to focus on firms’ management of negative balance protection in line with CFD restrictions

Maria Nikolova

The UK regulator will seek to detect attempts by firms to avoid the effect of the new CFD rules, as some firms might try to inappropriately opt up clients to become professional clients.

In line with FinanceFeeds’ earlier report, the UK Financial Conduct Authority (FCA) has earlier today confirmed the new restrictions for CFD offering to retail clients.

The FCA is requiring firms that offer CFDs and CFD-like options to retail consumers to:

  • Limit leverage to between 30:1 and 2:1 depending on the volatility of the underlying asset.
  • 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 trading account.
  • Stop offering current and potential customers cash or other inducements to encourage retail consumers to trade.
  • Provide a standardised risk warning, telling potential customers the percentage of the firm’s retail client accounts that make losses.
  • The proposed interventions are the same in substance as ESMA’s, although the FCA is also proposing to apply its rules to closely substitutable products (the measures for CFDs will thus be applied to CFD-like options).

Following feedback to the Consultation Paper from December 2018, the FCA has amended its rules to:

  • Clarify the scope of products, activities, and firms caught by the rules.
  • Clarify the methodology for the standardised risk warning, and the ban on monetary and non-monetary benefits.
  • Exclude certain sales activities for CFD-like options.

The regulator expects firms to comply with these restrictions. Its supervisory work in this area will likely focus on the following areas of the restrictions:

  • Firms’ prudential soundness including their management of negative balance protection.
  • Firms’ treatment of clients in the course of Brexit-related restructuring.
  • If applicable, the conduct of inward passporting firms operating under the Temporary Permissions Regime.
  • Attempts to avoid the effect of the new Handbook rules by:
  • Inappropriately opting up clients to become elective professional clients.
  • Moving clients to associated non-UK entities.
  • Not complying with financial promotion requirements, including the prominence of standardised risk warnings.

The FCA says it will continue to monitor for any harm to retail consumers relating to exchange-traded futures and similar ‘over-the counter’ products.

Read this next

Industry News

Lindsay Lohan, Jake Paul, Soulja Boy, Kendra Lust, Ne-Yo, Akon charged by SEC in crypto fraud case

“Sun paid celebrities with millions of social media followers to tout the unregistered offerings, while specifically directing that they not disclose their compensation. This is the very conduct that the federal securities laws were designed to protect against regardless of the labels Sun and others used.”

Institutional FX

State Street to acquire CF Global Trading to enhance global outsourced trading service

“Our team has worked with our clients for 20+ years to develop a global, multi asset class execution platform with a focus on accessing liquidity, improving workflows and reducing costs.”

Digital Assets

BitGo taps Coincover to allow clients to store backup keys for wallet recovery

“There is no such thing as too secure. That’s why we have elevated our relationship with Coincover, to integrate the option of storing backup keys with Coincover for all BitGo’s coin offerings.”


Coinbase integrate with Brazil’s Pix payment network

Cryptocurrency exchange Coinbase has integrated the Brazilian government’s payment system Pix and started allowing users to top up and withdraw money from their accounts using Brazilian Real.

Retail FX

eToro integrates with TradingView charts

Israeli broker eToro has upgraded its social trading platform to integrate professional charting and trading platform TradingView.

Digital Assets

Eurex rolls out first Bitcoin index futures in Europe

Deutsche Börse’s derivatives-focused exchange, Eurex is looking to bring another level of diversification to cryptocurrency traders with the launch of Bitcoin index futures.

Digital Assets

Apex Group taps Crypto Finance for digital-asset infrastructure

Swiss fintech Crypto Finance, the crypto arm of German stock exchange operator Deutsche Boerse, has partnered with US-based financial services provider Apex Group to offer institutional-grade crypto products.

Digital Assets

OneCoin legal officer faces decades in jail for laundering proceeds

Irina Dilkinska, former head of legal and compliance of cryptocurrency scam OneCoin, is facing up to 40 years in prison for her participation in the massive fraud scheme.

Institutional FX

Alpha Group reports solid financials for 2022

Foreign exchange service provider Alpha Group International plc (AIM: ALPH) announced its results for the financial year ending December 31, 2022, which showed solid performance in terms of revenue and earnings growth.