FCA Confirms Permanent Restrictions on Sale of CFDs and CFD-Like Options to Retail Consumers
On July 1, the UK Financial Conduct Authority (FCA) published a policy statement (PS19/18) containing rules on restricting contract for difference (CFD) products and CFD-like options sold to retail clients.
The FCA consulted on the rules in December 2018 in CP18/38 (for more information, see the December 14, 2018 edition of Corporate & Financial Weekly Digest). In PS19/18, the FCA confirms that for CFDs and CFD-like options sold to retail clients, firms will be required 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 CFD account;
stop offering monetary and non-monetary inducements to encourage retail consumers to trade; and
provide a standardized risk warning, which requires firms to tell potential customers the percentage of their retail client accounts that make losses.
In response to feedback to CP18/38, the FCA has clarified the scope of its CFD-like option restrictions to:
exclude firms that sell CFD-like options in other jurisdictions where the product is sold through an intermediary outside the UK; and
exclude the sales and distribution activities of EEA firms outside the UK. These firms are still prohibited from actively marketing unrestricted CFD-like options to UK retail consumers.
The rules go into effect on August 1 for CFDs and September 1 for CFD-like options.
PS19/18 is available here.