FCA to crackdown on spread betting

    The Financial Conduct Authority (FCA) proposed on Tuesday plans to crackdown on retail financial spread betting products known as ‘contracts for difference’ (CFD) after finding that 82 percent of customers using them had lost money.

    “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,” the FCA said on Tuesday.

    The financial watchdog said that it plans to introduce stricter rules for CFDs, ensuring that these retail clients are aware of the high risks involved with trading these “complex products”.

    Plans given by the FCA so far include:

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    • Proportion of winners and losers on products published by providers
    • Standardised risk warnings given to customers.
    • 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.

    “FCA seems to be imposing more penal rules than the Cypriot regulator last week… This will result in a much smaller less profitable CFD and spread-betting industry,” Liberum analysts have said.

    Shares in several firms offering the services were hit hard following FCA’s announcement this morning.

    Amongst the biggest fallers in the FTSE 250 were CMC Markets (LON:CMCX) and IG Group (LON:IGG), down approximately 30% in morning trading.

    IG Group has recognised there are “shortcomings in the approach to the marketing of CFDs” by certain firms, often operating from the UK.

    “Certain of the FCA proposals could enhance client outcomes,” it added.

    “However, the FCA’s proposals do not appear to directly apply to firms operating from outside the UK offering CFDs and binaries to clients in the UK on a cross-border services passport from another EU member state.

    “IG will carefully consider the implications of the FCA consultation paper.”

    The average amount lost among clients this year has been £2,200.