City watchdog proposes clampdown on high risk spread betting instruments
City watchdog the Financial Conduct Authority (FCA) has today proposed a clampdown on the sale of certain risky financial instruments to retail customers, in a move that could hit the already struggling spreadbetting sector hard.
The FCA proposed a ban on the sale, marketing and distribution of binary options to retail customers and a restriction of the sale, marketing and distribution of contracts for difference (CFD) and similar products to retail customers.
Binary options and CFD’s are financial instruments that allow traders to speculate on which way a market will move.
In August European regulator the European Securities and Markets Authority (Esma) introduced rules restricting the provision of CFDs to retail clients.
Following their introduction, shares in spreadbetting companies such as IG Group, CMC Markets, and Plus500 have plunged.
The FCA said its proposed rules are the same in substance as Esma’s existing, EU-wide temporary restrictions.
It said the FCA is also proposing to apply its rules to similar products including so-called turbo certificates.
The FCA’s rules would have a permanent effect.
Christopher Woolard, executive director of strategy & competition at the FCA, said: “We remain very concerned about the harm to retail consumers that’s being caused by the design and distribution of some complex derivative products.
"This is despite focused supervisory work over several years to try and improve firms’ conduct. Today’s proposals will enhance consumer protection by banning binary options and ensuring CFDs are only marketed and sold to consumers who understand the risks from trading these types of products.”
CMC markets said it does not offer any closely substitutable products and said its “strategy of focussing on higher value retail and professional clients, growing its institutional business and the increased size and scale of the Australian stockbroking business puts the group in a strong position going forward.”