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

© Financial Conduct Authority 2016 ESMA are looking in to this sector and other European countries are taking action including France, Belgium, Poland and Cyprus We want to hear your feedback – visit our CP on contracts for differences for further detail www.fca.org.uk/publication/consultation/cp16-40.pdf. Consultation closes on 7 March 2017. Contracts for differences: enhancing the conduct of business regime Over the past six years our supervision work has identied instances of poor conduct across the CFD sector About the market Proposals Next steps We want to improve standards and ensure consumers are appropriately protected. Highly sensitive information We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved. Contracts for differences, including spread bets and rolling spot forex products, are complex leveraged nancial instruments offered by investment rms, often through online platforms. Standardised risk warnings and mandatory disclosure of prot-loss ratios on client accounts to illustrate the risks. Setting lower leverage limits for inexperienced retail clients (at a maximum of 25:1). Capping leverage at a maximum level of 50:1 for experienced retail clients. Preventing CFD providers from using any form of bonus or benet to promote their products. Considering a range of policy measures for binary bets to complement existing conduct of business rules. It is estimated that the number of CFD rms in the UK has doubled since 2010 CFD rms hold around £3.5 billion in clients money 82% of investors lose money according to our sample data