After a conducting a review in a sampled of ten firms that offer CFD products to clients on a non-advised basis in the UK, which covered both smaller and larger firms in the sector, with the purpose of assessing whether the followed client take-on procedures were in accordance with the relevant regulatory rules and regulations, the UK’s watchdog, the Financial Conduct Authority (FCA) uncovered many problems.
Therefore, it was forced to address a letter to the CEOs of all CFD brokers in its jurisdiction in order to specify the problem areas and urge that measures are taken to rectify the situation and ensure compliance. The said letter is signed by Megan Butler, the Executive Director of Supervision Investment, Wholesale & Specialists Division, and besides informing CFD brokers about the areas of concern identified by the FCA, it also asks from all such firms to consider whether their firms comply with FCA requirements for sales of CFD products.
As part of its review, the FCA focused specifically on four areas, namely the firms’ approaches to assessing the appropriateness of CFD trading for prospective clients, initial disclosures to clients, anti-money laundering (AML) controls and client categorisation.
According to the FCA in all these areas the results of the review are viewed as poor, since most firms did not properly asses their clients, nor they have anti-money laundering systems and controls in place. Moreover, they were wrongly categorizing certain clients as professional when in fact they were not and they also had poorly worded risk warnings that did not set out the nature and risks of CFD products in a manner that was clear, fair and not misleading.