UK The Financial Conduct Authority (FCA) has sent a letter to contract-for-difference (CFD) providers highlighting its concerns regarding “problem firms” in the CFD space and bad practices.
In its letter to CEOs of retail brokers with UK license, the financial markets watchdog, reminds that CFDs are a high-risk product that can lead to substantial customer losses. The FCA noted that 80% customers who invest in CFDs, lose their money, even though the regulator is taking action to reduce it.
The FCA boasts having stopped 24 firms marketing CFDs in the UK in 2020 and 2021. The regulator’s actions in 2021 alone prevented £100 million financial harm to UK consumers.
Sarah Pritchard, Executive Director of Markets at the FCA said:
We have set out the standards we expect CFD firms to demonstrate in order to protect consumers and ensure market integrity. CFD providers authorised in our regime must sell products appropriately, and when the new consumer duty comes into effect, will need to ensure that products deliver good outcomes for retail consumers. We will not hesitate to take swift and assertive action where we identify harm.
The FCA noted that a number of firms, often offering services from overseas, are associated with bad practices. In the worst cases, some of them use fake celebrity endorsements, aggressive sales strategy and investment advice offerings without proper authorization. Such companies often try to force customers to invest large amounts of money with pressure tactics.
The FCA expects all of the companies that received its letter to take steps in response of the raised concerns by January 2023.
Earlier in November, the UK financial markets regulator, issued warning against the “gamification” of trading apps, expressing its growing concern that online business can use the design of trading applications to manipulate consumers in new ways.
