Of relevance to:
Firms offering CFD products
Last December the FCA published Consultation Paper CP16/40 “Enhancing conduct of business rules for firms providing contract for difference products to retail clients” proposing a package of measures to improve investor protection for retail investors tempted to invest in CFDs – details can be found in Regulatory Roundup 83. Last December the FCA published Consultation Paper CP16/40 “Enhancing conduct of business rules for firms providing contract for difference products to retail clients” proposing a package of measures to improve investor protection for retail investors tempted to invest in CFDs – details can be found in Regulatory Roundup 83.
The intention was to issue a Policy Statement with final rules re CFDs (and possibly a further Consultation Paper on binaries) in “spring 2017”.
A statement by the FCA advises that it will delay making final rules re CFDs in the light of an announcement by ESMA on its consideration of product intervention measures (MiFIR Article 40 permits ESMA to temporarily prohibit or restrict the marketing, distribution or sale of certain instruments – and for good measure similar powers are given to the EBA (Article 41) and to competent authorities (Article 42)).
Before the industry breathes a sigh of relief, the FCA statement reminds us that it will continue to focus on the sector and directs the reader to another FCA statement on CFD firms failing to meet expectations regarding appropriateness assessments.
It may be recalled that the FCA issued a ‘Dear CEO’ in February 2016 concerning CFD products (see Regulatory Roundup 73) which highlighted various concerns including the approach that firms took towards completing the appropriateness assessment “… most of which were not in line with COBS 10”.
A follow-up review to this ‘Dear CEO’ letter sampled 23 firms and key areas of concern remain:
- Inadequate assessments of prospective clients’ knowledge
- Insufficient account of clients’ previous transactional experience
- Inadequate risk warnings to prospective clients who fail appropriateness assessments
- Failure to evaluate whether failed applicants should be allowed to make CFD transactions
- Poor oversight, weak controls and inadequate management information
The statement concludes by explaining that the FCA continues to have serious concerns about the distribution of CFDs to retail clients and “will consider enforcement investigations or other actions as appropriate”.
