The FCA warns brokers against offering "alternatives" to CFDs

The British Financial Supervisory Authority, FCA, issued a statement addressed to brokers regarding the sale of risky speculative products to retail customers after ESMA's actions in the field of CFD instruments.

In June 2018, the European Securities and Markets Authority (ESMA) finalized temporary measures restricting sales, marketing and distribution of differential contracts (CFDs) to retail customers. These measures are valid throughout the EU from today, 1 August, for a period of three months. The new exploits essentially limit the Forex and CFD leverage to 1: 30 on major currency pairs, with lower product leverages such as CFDs on indices and cryptocurrencies.

FCA with ESMA support

The British regulator said that it fully supports ESMA's efforts to protect retail investors.

As with other regulators throughout Europe, FCA said they knew that "other products" they can pose the same risks to consumers as CFD, especially where the investor is dealing with high leverage. The last ESMA questions and answers regarding product intervention have also highlighted these threats. These substitutes may be sold under different brands but share common features with CFD, and these characteristics may cause severe financial losses for retail customers.

The regulator is concerned that brokers may consider circumventing new ESMA guidelines by selling other similarly complex products to retail customers. ESMA clearly states that companies "Should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that work in the best interest of the client". This mainly applies to products with characteristics and structure similar to CFD, such as Turbo Certificates.

Cooperation with other regulators

The FCA stated that it would cooperate with ESMA and other European regulators to monitor and evaluate the sale of alternative, speculative products to retail customers. If he finds evidence that these products cause similar negative consequences, he will cooperate with ESMA.

The ESMA intervention focuses on CFDs, but FCA reminded companies of their existing obligations. In particular, if a company is considering marketing, selling or distributing alternative products, it should pay attention to meeting business requirements. They include the principles of the best interest of the client, communication with clients and financial promotions, and suitability and suitability. FCA also expects companies to carefully consider whether they are able to meet their respective product management obligations.