FCA raises concerns about possible CFD mis-selling

The City of London regulator has warned of possible industry-wide failings in the selling of trading products such as spread-bets, contracts for difference (CFD) and forex.

The Financial Conduct Authority investigated the procedures used at ten CFD providers for taking on new clients and identified "several areas of concern", including that most of the firms' did not properly assess the appropriateness of CFD trading for prospective clients.

Moreover, most risk warnings issued to clients who failed the appropriateness assessments were "not adequate", while anti-money laundering (AML) controls in place to manage the increased risks posed by higher risk clients were also "insufficient".

CFDs are fairly complex financial products that due to their leverage can result in traders gaining or losing more than their
original investment.

"These findings also suggest that firms may not be acting in the best interests of their clients and treating them fairly," the FCA said in a letter to CEOs, bringing into question firms’ compliance with other guidelines and regulatory principles.

The FCA also said some firms' risk warnings were poorly worded and did not set out the nature and risks of CFD products in a manner that was clear, fair and not misleading.

"Given the poor results that we observed across our sample, we are concerned that there is a high risk that CFD providers industry-wide are not meeting the requirements of the rules when taking on new clients and/or are failing to do enough to prevent financial crime."