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.

Regulators UK FCA
Entity Types B/D; Bank; CNSM; FCM; OTC
Reference Lt, 1/10/2018; FCA PROD; MIFID/MIFIR, Dir 2014/65, Reg 600/2014; PRDINV
Functions Compliance; C-Suite; Financial; Legal; Product; Reporting; Risk; Suitability; Trade Reporting; Trading
Countries United Kingdom
Products Clearing; Commodities; Derivatives; Equity; Fixed Income; Forex; Fund Mgt; Securities
Regions EMEA
Rule Type Guidance
Rule Date 1/10/2018
Effective Date 1/10/2018
Rule Id 37364
Linked to Rule :36859
Report Issue 1/15/2018
Report Section UK

Last substantive update on 01/10/2018