In this paper, we propose permanent rules to restrict how CFDs and CFD-like options are marketed, distributed, and sold to retail consumers. This paper also includes a discussion on whether other complex derivative products may pose similar risks of harm when sold to retail consumers and could benefit from similar measures.
Contracts for difference (CFDs) are complex, leveraged derivatives. They are typically offered to retail consumers through online trading platforms.
We are proposing to intervene in this market to address poor conduct by UK and EEA firms who offer CFDs to retail consumers, and to limit the sale of CFDs and similar products with excessive risk features that result in harm to retail consumers.
This Consultation Paper (CP) follows the European Securities and Markets Authority’s (ESMA) temporary EU-wide restrictions on the sale of these products to retail consumers. It also follows the FCA’s proposed rules in December 2016 (CP16/40), which we did not pursue at the time due to prospective action by ESMA.
We are proposing permanent rules to require firms to:
These measures are largely the same as ESMA’s temporary measures. However, we are also proposing to extend our rules to closely substitutable products, including so-called turbo certificates. We are also proposing 30:1 leverage limits for CFDs referencing certain government bonds (compared to 5:1 under ESMA’s measures).
We estimate that these proposals could reduce annual losses for retail customers of UK firms by between £267.4m to £450.7m per year.
This CP also discusses and seeks feedback in Chapter 4 on whether other complex derivative products, such as futures or similar over-the-counter (OTC) products, may pose similar risks of harm to retail consumers and could benefit from similar rules.
Our proposals will directly affect:
This CP is also relevant to:
The CP also outlines the potential implications of the UK’s exit from the European Union.
Please send us your comments on our proposed rules in the CP by 7 February 2019.
Please send us your feedback on our discussion in Chapter 4 of other retail derivative products by 7 March 2019.
You can also:
We will consider feedback on our proposals and aim to publish a Policy Statement and final Handbook rules by March 2019.
If finalised, rules for CFDs would apply shortly afterwards and those for CFD-like options would come in to force two months later.
If we consider extending the scope of our rules to products addressed in Chapter 4, we will consult on this later in 2019.
We will consult separately in early 2019 on a potential ban on the sale, marketing and distribution of derivatives that reference cryptocurrencies to retail consumers.