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UK watchdog warns of “serious risk of harm” from spread-betting

Britain’s financial watchdog has warned spread-betting firms of poor practices, following a review by the Financial Conduct Authority (FCA) related to the industry’s use of contracts for difference (CFD)

A warning letter has stated consumers are “at serious risk of harm,” after finding that the majority of customers lost money through their trades.

The regulator revealed that it found 76% of retail customers who bought CFD products in the period covered by the review, June 2015 – June 2016, lost money as a result.

In its letter to chief executives, the FCA stated: “The review uncovered areas of serious concern that we want to highlight to firms across the industry.”

The providers of CFDs, which the FCA described as “complex, high risk instruments”, were also found to have “weak” conflict of interest controls, as well as “ineffective” communication, monitoring and challenge practices.

This was in addition to a “flawed” due diligence processes when taking on new distributors of CFDs

The FCA warned: “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.

Adding that chief executives have now been told to consider whether firms are complying with FCA requirements.

It was also noted that, some companies have stated their intent to cease offering CFD’s to distributors that provide the contracts on an advisory or discretionary basis, while others are no longer offering them to retail consumers.

The FCA also highlighted one firm, who remained nameless, “whose arrangements were so poor” that it now plans to “take further action.”

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