Find out about our expectations of providers and brokers of retail contract for difference (CFD) products, which include spread betting and rolling spot foreign exchange (FX).
We expect firms to comply with our rules to ensure their CFD products are marketed and sold to the right consumers.
On this page find out about:
- Dear CEO letter: Providers and distributors of CFD products
- latest information on FCA and ESMA's work in relation to the sale of CFDs and binary options to retail clients
- Consultation Paper (CP16/40)
- Dear CEO letter: Client take-on
- our future focus
- investor information
Dear CEO letter - Providers and distributors of CFD products: resolving failings which may cause significant consumer harm
Following the conclusion of a project that assessed whether CFD providers and distributors deliver the CFD product to the intended target market, pay due regard to the interests of customers and treat them fairly, we have published a Dear CEO letter for the attention of all CFD firms (PDF) that provide or distribute these financial instruments to retail customers.
Latest information on FCA and ESMA's work in relation to the sale of CFDs and binary options to retail clients
Statement on contract for difference products and CP16/40 (29 June 2017)
We published Consultation Paper CP16/40 on 6 December 2016 that proposed changes to improve the conduct of firms and reduce the potential for consumer detriment. The proposals include:
- standardised risk warnings and mandatory profit-loss disclosure to illustrate the risks
- lower leverage limits for any new client that does not have 12 months experience or is not active in trading CFD products
- capping leverage at a maximum level of 50:1 for all retail clients
- preventing CFD providers from using any form of trading or account opening bonuses or benefits to promote products
- considering a range of policy measures for binary bets that would complement existing conduct of business rules, once these products are brought into the our regulatory scope
We reviewed the procedures for taking on new clients in a sample of 10 firms that offer CFD products. We identified several areas of concern, which included:
- firms approach to completing the appropriateness assessment was not in line with COBS 10
- most risk warnings issued to clients who failed the appropriateness assessments were not adequate
- anti-money laundering controls in place to manage the increased risks posed by higher risk clients were insufficient
We expect CFD providers to consider the points raised in the letter.
If a firm identifies any areas of concern when reviewing their processes, we expect it to have regard to Principle 6 (Customers’ interests) and Principle 11 (Relations with regulators) and act accordingly.
There are several areas we will be focusing on and we expect CFD providers to meet these requirements. They include:
- appropriateness testing
- prudential requirements: ICAAP, recovery and resolution plans
- client money
- senior managers and certification regime
- financial promotions
- best execution
- anti-money laundering
Retail CFD products have been a focus of intensive discussion at the European Securities and Markets Authority (ESMA).
ESMA has produced a range of materials to improve harmonised application of MIFID standards to the CFD sector and has also re-issued an ESMA warning about retail CFDs on 25 July 2016. You can also read Q&As published by ESMA on the application of the Markets in Financial Instruments Directive (MiFID) to the marketing and sale of financial contracts for difference (CFDs) and other speculative products to retail clients (such as binary options and rolling spot forex).
IOSCO has published a report on the IOSCO survey on retail OTC leveraged products.
If you are considering an investment in CFDs, we would advise that you check our list of unauthorised firms and individuals to avoid.
Furthermore, if you are also considering binary bets or options, you should read the following warnings:
- Consumer warning about the risks of investing in cryptocurrency CFDs (14 November 2017)
- Consumer warning about the risks of investing in binary options (14 November 2017)
- ScamSmart information on binary options scams
- Fraudsters claim binary options being used for investment scams (City of London Police)
- Binary options trading (Gambling Commission)
- Binary options scam warning (Gambling Commission)