The FCA published two consultation papers in December 2018 concerning Contracts for Difference (“CFDs”) and Binary Options.
With regard to Binary Options, the FCA is proposing permanent rules to prohibit the sale, marketing and distribution of binary options to retail clients by firms that carry out the activity in, or from, the United Kingdom.
https://www.fca.org.uk/publication/consultation/cp18-37.pdf
With regard to CFDs, the FCA is proposing to intervene in this market to address poor conduct by UK and EEA firms who offer CFDs to retail consumers, and to limit the sale of CFDs and other directly substitutable products with excessive risk features that result in harm to retail consumers.
Consultation Paper 18/38 (“CP18/38”) follows the European Securities and Markets Authority’s (“ESMA”) decision to temporarily restrict how these products are sold to retail consumers because of the significant investor protection risks they pose.
CP18/38 proposes making ESMA’s temporary product intervention measures permanent in the UK. The FCA’s proposed intervention takes a wider scope than ESMA’s intervention by including products with many of the same characteristics as CFDs, which the FCA terms as CFD-like options.
The FCA is also proposing to apply 30:1 leverage limits to CFDs referencing certain government bonds, to better reflect their risk (compared to 5:1 under ESMA’s measures).
The FCA will consult separately in early 2019 on a potential ban on the sale of CFDs and other derivatives referencing cryptocurrencies to retail consumers. This follows the commitment made in the UK Crypto-asset Taskforce Final Report published in October 2018. Therefore, the measures in CP18/38 that apply to CFDs referencing cryptocurrencies may change as a result of future consultation.
