Norway’s financial regulator reports of revoking licenses of four CFD brokers over law violations

Maria Nikolova

Over the last two years, the regulator conducted on-site inspections at six CFD brokers and took away four licenses as a result of law violations it found.

Norway has joined the growing list of jurisdictions voicing their concerns about the risks associated with contracts for difference (CFDs) trading.

On Wednesday, Norway’s financial supervision authority Finanstilsynet published the results of its oversight of CFD brokers during the past couple of years.

During the last two years, the regulator has carried out on-site inspections of six securities companies whose main activities are within CFD trading. The inspections have revealed several serious cases of breach of the Securities Trading Act’s Code of Good Practice, and the licenses of four of the six companies have been revoked as a result of these violations.

In these cases, the main reason for the loss of the licenses has been the companies’ role for short-term and loss-making CFD trading. The most serious violations include misleading marketing, providing insufficient information about risk, as well as inadequate assessments of the suitability of the product / strategy for the particular customer.

As part of these local inspections, Finanstilsynet has reviewed the business customers’ trade results. The check covered approximately 1,000 customers who traded CFDs from one to two years. Finanstilsynet found that 82% of these traders lost money, with the average loss corresponding to circa 55% of the customer’s equity.

These findings are similar to those published by the UK Financial Conduct Authority (FCA), which is seeking to reform the regulations for offering CFDs to retail investors. The FCA’s analysis of a representative sample of client accounts for CFD firms found that 82% of clients lost money on these products.

The Central Bank of Ireland is also pushing for enhanced protection of clients of CFD brokers. The regulator is currently examining two main ways of approaching the matter: the prohibition of the sale or distribution of CFDs to retail clients in and from Ireland, or the implementation of beefed-up investor protection measures. The latter option involves detailed risk disclosures, negative balance protection, as well as introducing a strict leverage limit.

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