Crackdown on financial spread betting proposed by FCA

December 6, 2016 9:29 am Published by

Crackdown on financial spread betting proposed by FCA

  • 6 December 2016
  • From the section Business

Trader watching monitorImage copyright

New rules to help protect investors using financial spread betting – in which 82% have lost money – have been proposed by the financial watchdog.

The Financial Conduct Authority (FCA) wants to tackle the “contract for difference” (CFD) market, which includes financial spread betting.

It fears that retail customers are using products they do not understand.

The CFD market offers the opportunity to speculate on a shift in the market without owning the underlying asset.

Share prices hit

The FCA is proposing measures to limit the risks of CFD products and ensure that customers are better informed.

“We have 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,” said Christopher Woolard, the FCA’s executive director of strategy and competition.

These complex investments are often sold to ordinary investors online. The potential losses or gains can be much larger than from traditional trading as an investor can hold a trading position representing a much higher value than the size of the stake invested.

The FCA’s analysis found that 82% of clients lost money on such products. The average among clients checked by the watchdog was a loss of £2,200.

Its plans include:

  • Standardised risk warnings given to customers
  • Proportion of winners and losers on products published by providers
  • Capping the proportion of “borrowed” funds that can be used for trading by inexperienced retail clients
  • Preventing providers from using any form of trading or account opening bonuses or benefits to promote CFD products

Consultation on the plans is open until March, with a further statement expected from the FCA in the spring.

The share prices of firms offering these services were hit hard in early trading after the announcement was made.

CMC Markets and IG Group were the heaviest fallers on the FTSE 250, down 23% and 22% respectively in the first half hour.

Playtech, the gambling software company which is expanding into financial betting, was down 5%.

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This post was written by FSB News