The financial watchdog has issued a serious warning about the risks posed by spread-betting providers, saying that they don’t adequately educate retail investors about the products they are selling and that there are currently not enough controls in place to regulate the market.
The Financial Conduct Authority on Wednesday said that it had completed an extensive review, and that it had sent a letter to all providers and distributors of so-called contracts of difference, or CFDs, flagging “areas of serious concern”.
Spread betting is a type of market speculation, often done online, where investors bet on the price of a stock, commodity, currency or other financial asset going up or going down.
The FCA said that it had found in its review that 76 per cent of retail customers who bought CFD products lost money over the 12 month period during which the review was conducted – from July 2015 to June 2016.
It said that it had “identified weaknesses in the conflict of interest management arrangements” at all of the providers that it had assessed and that many did not have “the effective oversight they needed to robustly challenge poor conduct or control failings”.
“Given the significant weaknesses we found across our sample, we believe there is a high risk that firms across the sector are not meeting our rules and expectations when providing and distributing CFDs,” the FCA said.
“As a result, consumers may be at serious risk of harm from poor practices in this sector,” it added.
The watchdog said that firms need to improve “a number of oversight and control arrangements to reach standards we would consider adequate”.
Late last year, the European Securities and Markets Authority (ESMA) already said that it was considering restricting the marketing, distribution and sales of CFD products to some types of customers.
It is conducting a public consultation in January 2018 on this matter.
