On 1 July 2019, the Financial Conduct Authority (FCA) confirmed rules restricting the sale, marketing and distribution of contracts for difference (CFDs) and CFD-like options sold to retail consumers. This follows a previous FCA announcement on 26 April that delayed the publication of a Policy Statement and any final FCA Handbook rules until the FCA had received further consultation feedback in response to Consultation Paper 18/38 (CP18/38). The FCA has now published Policy Statement PS19/18 which summarises the consultation feedback and outlines final policy and Handbook rules.
The FCA is requiring firms that offer CFDs and CFD-like options to retail clients to:
- limit leverage to between 30:1 and 2:1;
- close out a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on their CFD account;
- provide protections that guarantee a client cannot lose more than the total funds in their CFD account;
- stop offering monetary and non-monetary inducements to encourage trading; and
- provide a standardised risk warning, which requires firms to tell potential customers the percentage of their retail client accounts that make losses.
Following feedback from CP18/38, the FCA have clarified the scope of the restrictions on CFD-like options by:
- excluding firms that sell CFD-like options in other jurisdictions, where the product is sold through an intermediary outside the UK; and
- excluding the sales and distribution activities of EEA firms outside the UK (these firms will still be prohibited from actively marketing unrestricted CFD-like options to UK retail consumers).
The FCA’s new rules aim to maintain and strengthen protections for consumers in the UK market and will come into force on 1 August 2019 for CFDs, and 1 September 2019 for CFD-like options.