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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.

©2019 Katten Muchin Rosenman LLP

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John Ahern, Financial Attorney, London, Katten Law Firm
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John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
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Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
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Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
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Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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