PS19/18: Restricting contract for difference products sold to retail clients

Open consultation: CP18/38
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Policy Statement

We have finalised rules restricting how CFDs and CFD-like options are sold, marketed, and distributed to retail consumers.

Read PS19/18 (PDF)

Contracts for difference (CFDs) are complex, leveraged derivatives. They are typically offered to retail consumers through online trading platforms.

We have intervened in this market to address poor conduct by UK and European Economic Area (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. Retail consumers are expected to save between £267 million and £451 million per year from our measures. 

What we are changing

We are requiring firms that offer CFDs and CFD-like options to retail consumers to:

  • Limit leverage to between 30:1 and 2:1 depending on the volatility of the underlying asset.
  • Close out a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on their CFD account.
  • Provide protections that guarantee a client cannot lose more than the total funds in their trading account.
  • Stop offering current and potential customers cash or other inducements to encourage retail consumers to trade.
  • Provide a standardised risk warning, telling potential customers the percentage of the firm’s retail client accounts that make losses.

Following feedback to CP18/38, we have amended our rules to:

  • Clarify the scope of products, activities, and firms caught by our rules.
  • Clarify the methodology for the standardised risk warning, and the ban on monetary and non-monetary benefits.
  • Exclude certain sales activities for CFD-like options.

Who this applies to

Our measures will directly affect:

  • Retail clients or potential retail clients who invest in CFDs and CFD-like options.  
  • MiFID investment firms, including Capital Requirements Directive (CRD) credit institutions as appropriate, who are marketing, distributing or selling CFDs and CFD-like options in, or from, the UK to retail clients.
  • UK branches of third-country investment firms who are marketing, distributing or selling CFDs and CFD-like options to retail clients.

Next steps

If your firm carries out sales, marketing or distribution in, or from, the UK of the relevant products to retail clients, you will be required to comply with the new rules in our Handbook from:

  • 1 August 2019 for CFDs
  • 1 September 2019 for CFD-like options

What will we do next

We expect firms to comply with these restrictions. Our supervisory work in this area will likely focus on the following areas of the restrictions:

  • Firms’ prudential soundness including their management of negative balance protection.
  • Firms’ treatment of clients in the course of Brexit-related restructuring.
  • If applicable, the conduct of inward passporting firms operating under the Temporary Permissions Regime.
  • Attempts to avoid the effect of our new Handbook rules by;
    • Inappropriately opting up clients to become elective professional clients.
    • Moving clients to associated non-UK entities. 
    • Not complying with financial promotion requirements, including the prominence of standardised risk warnings. 

We will also continue to monitor for any harm to retail consumers relating to exchange-traded futures and similar ‘over-the counter’ products.