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FCA highlights continuing concerns about problem firms in the CFD sector

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The FCA has reminded firms offering contacts for difference (CFDs) that CFDs are highly leveraged derivatives and adverse price movements in relevant markets can lead to substantial losses for consumers.

Approximately 80% of customers lose money when investing in CFDs and, because of the risks, the FCA has undertaken an extensive programme of work to ensure consumers are as protected as possible.

The sector has attracted a number of firms, often accessing the UK from overseas, that do not deliver good customer outcomes. In 2020 and 2021, FCA action stopped 24 firms marketing CFDs in the UK. The actions in 2021 alone prevented an estimated £100 million a year of harm to UK consumers. Further FCA action has been taken in 2022 and will continue where justified.

Sarah Pritchard, Executive Director of Markets at the FCA said: “We have set out the standards we expect CFD firms to demonstrate in order to protect consumers and ensure market integrity. CFD providers  authorised in our regime must sell products appropriately, and when the new consumer duty comes into effect, will need to ensure that products deliver good outcomes for retail consumers. We will not hesitate to take swift and assertive action where we identify harm.”

In some of the worst firms, the FCA has seen examples of fake celebrity endorsements, the use of pressure-sales tactics to persuade people to invest increasing amounts of money and inducements being given to customers to upgrade to elective professional status despite clients not meeting the criteria and losing protection under our rules. The FCA has also seen some firms giving investment advice without authorisation.

The FCA has written today to CFD providers outlining our expectations and highlighting areas of poor practice seen in firms. The FCA expects all firms to have agreed actions and next steps in response to these concerns by January 2023 and in advance of the new consumer duty coming into force. Consumers considering investing in CFDs are reminded to:

  1. Check the Financial Services Register to see if the firm you are dealing with is FCA-authorised.
  2. Check our unauthorised firms and individuals page, where you can search for names on our Warning List.
  3. Think carefully before choosing to ‘opt up’ to professional client status as you will lose the protections FCA rules provide retail consumers.
  4. Think carefully before choosing to deal with an overseas firm which might not provide retail consumers the same protections as FCA rules.

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