- Posted by Michael McKee
- On 14 August 18
- CFDs, Contracts for difference, ESMA, FCA, Financial Conduct Authority, High -risk speculative investments, Restrictive measures
On 1 August 2018, the FCA published a statement on selling high-risk speculative investments to retail clients. The statement is made on the same day that the temporary restrictive measures introduced by the European Securities and Markets Authority (ESMA) on the sale, marketing and distribution of contracts for difference (CFDs) to retail clients entered into force across the EU. For further information on the relevant ESMA announcement of March 2018 please see here.
Similarly to the view taken by other regulators across the EU, the FCA noted that it is aware that other products can pose the same kinds of risks to consumers as the products subject to the ESMA restrictions, particularly, in cases where they expose investors to significant leverage. This risk is also highlighted in ESMA’s Q&As on its temporary product intervention measures published on 30 July 2018.
The FCA is concerned that “firms may consider getting around ESMA’s measures by selling other similarly complex products to retail clients” and will work with ESMA and other regulators to assess whether such activities take place. If the FCA finds evidence of such products causing consumer harm, it will “support further action to extend the scope of [ESMA’s] intervention“.
The FCA also reminded firms of their existing obligations, including the conduct of business requirements, as well as the relevant product governance obligations. Such requirements are especially relevant in the context of selling, distributing and marketing alternative products and include rules on the client’s best interests, as well as financial promotions, suitability and appropriateness.