UK watchdog announces permanent crackdown on risky trading schemes

Britain’s financial watchdog has made a previously temporary clampdown permanent on spread-betting firms which allow investors to make high risk bets with the potential to rack up huge losses.

The Financial Conduct Authority (FCA) has made restrictions against the use of contracts for difference (CFDs) permanent, almost a year after European regulator Esma introduced tough time-limited rules.

CFDs are a type of derivative product that see investors speculate on whether the movement of the stock will fall below or rise above the respective bid and offer prices quoted by the spread-betting firm.

Last year, the FCA said that consumers were “at serious risk of harm” as a result of poor industry practices involving the contracts.

The risky type of derivative has been used by a host of online trading platforms such as Plus500, IG Group and CMC Markets.

These online brokerage firms have been required to limit the leverage they offer to a maximum of 30:1, with limits as low as 2:1 for the riskiest assets.

Rules have also been tightened on products similar to CFDs, the regulator said on Monday, to protect consumers from companies trying to find loopholes in the policy.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “Our intervention follows evidence of firms aggressively marketing CFDs to the general public, meaning retail consumers are buying a product that isn’t appropriate for them.

“We saw firms offering CFDs with increasingly higher leverage, resulting in high proportions of consumers losing money.

“EU rules are temporary. The new rules maintain and strengthen protections for consumers.”

The rules for CFDs will be made permanent from August 1 2019, while rules for CFD-like options will be firmed on September 1.