UK FCA CFD Products Harmful
On Jan. 10, FCA sent letter to provider, distributor of CFD products.
- Follows Dec. 2017, FCA cited ESMA to ban retail CFD, binary options, see #36859.
- Follows conclusion of project to assess whether CFD providers, distributors deliver
CFD product to intended target market or pay due regard to interest of customers.
- Lack of Suitability
- Most providers and distributors are unable to offer satisfactory definition of their
target market or to explain how they align needs of this group to the CFD product.
- Majority (76%) of retail customers who bought CFD product on either an advisory
or a discretionary basis lost money over the 12 month period which was reviewed.
- Range of communication and monitoring practice by provider to their distributors.
- Many of these practices were found as ineffective, did not meet FCA expectations.
- Diligence and Reporting
- Most sample providers had flawed due diligence process for taking on distributors.
- Identified conflict of interest management weaknesses at all distributors assessed.
- Most firms had management information, and monitoring in place, but with flaws.
- Thus, did not have oversight needed to challenge poor conduct or control failings.
- Quality of remuneration arrangements at CFD distributors was found to be mixed.
- Some demonstrated good practices, but many show much room for improvement.
- Several of the distributor firms had problems with their processes and the criteria
they consider acceptable when categorising their clients, as elective professionals.
- Next Steps
- Given weaknesses identified, there is high risk that firms across the sector are not
meeting the FCA rules, expectations when providing and distributing CFD products.
- As result, consumers may be at serious risk of harm, from poor practices in sector.
- Need improved oversight, control arrangements to reach adequate FCA standards.
- Must consider whether firm complies with the FCA requirements when providing or
distributing CFDs to retail customers on either an advisory or a discretionary basis.
- Product Intervention
- Firms to pay attention to Product Intervention and Product Governance Sourcebook.
- Implemented MiFID II product governance requirements in FCA Handbook as PROD.
- Rules for firms who manufacture (provide), and/or distribute financial instruments.
- When FCA follow up on this topic will assess the firms against these new provisions.
||B/D; Bank; CNSM; FCM; OTC
||Lt, 1/10/2018; FCA PROD; MIFID/MIFIR, Dir 2014/65, Reg 600/2014; PRDINV
||Compliance; C-Suite; Financial; Legal; Product; Reporting; Risk; Suitability; Trade Reporting; Trading
||Clearing; Commodities; Derivatives; Equity; Fixed Income; Forex; Fund Mgt; Securities
Last substantive update on 01/10/2018