CP16/40: Enhancing conduct of business rules for firms providing contract for difference products to retail clients

Open consultation: CP16/40
Consultation closed
Policy Statement
Spring 2017
Spring 2017

This consultation outlines our concerns around increasing evidence of poor conduct and risks to investor protection from retail contracts for differences (CFDs) and proposes a package of policy measures designed to address those risks.

Show CP16/40 (PDF)

Retail CFDs are complex, leveraged derivative financial instruments that investment firms commonly offer to
retail clients through online trading platforms.

Since 2009/10, our supervisory work and thematic reviews of CFD firms have found increasing instances of poor conduct and risks of consumer detriment across the sector. In our most recent review of retail CFD providers in 2015, we found shortcomings in the quality of appropriateness tests conducted by firms, including risk warnings, and anti-money laundering checks. According to our sample data, 82% of clients lost money on these products.

This consultation also discusses our policy considerations for binary bets. Binary bets are often marketed in a similar way to CFD products, and allow a client to ‘bet’ on whether the price of a financial instrument will be higher or lower than a fixed threshold at a future point in time.

Binary bets are presently regulated by the Gambling Commission but are expected to be brought inside our regulatory perimeter following the amendments to the Regulated Activities Order as part of the government’s transposition of MiFID II.

We are concerned that binary bets pose a risk of investor detriment and raise questions as to whether they serve a genuine investment need. We discuss potential policy approaches to address our concerns relating to these products.

Who this applies to

Our proposals will most directly affect:

  • retail clients and potential clients in CFDs, spread betting and rolling spot foreign exchange products
  • providers and distributors of retail CFD products
  • providers and distributors of binary bets

Our proposals may also be of interest to:

  • trade bodies representing retail CFD product providers
  • consumer bodies

What you need to do

This consultation has now closed.

Next steps

We will consider your feedback on our policy proposals for retail CFDs and aim to publish a Policy Statement confirming final FCA Handbook rules in spring 2017, with a view to these rules coming in to force shortly afterwards.