The FCA has confirmed new rules restricting the sale, marketing and distribution of CFDs and CFD-like options to retail customers.
The rules seek to address harm to retail consumers by making the European Securities and Market Authority’s (ESMA’s) temporary restrictions of contracts for difference (CFDs) sold to retail clients, permanent.
For CFDs and CFD-like options sold to retail clients, firms will be required 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 the 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.
By including CFD-like options the FCA is seeking to ensure that firms do not try to avoid the new measures by offering closely substitutable products, which the FCA believes present the same risk of harm.
In response to feedback, the FCA has clarified the scope of its CFD-like option restrictions to achieve its intended policy outcome by:
- Excluding firms that sell CFD-like options in other jurisdictions, where the product is sold through an intermediary outside the UK.
- Excluding the sales and distribution activities of EEA firms outside the UK. These firms are still prohibited from actively marketing unrestricted CFD-like options to UK retail consumers.
If intermediaries sell, market, or distribute CFD-like options in or from the UK, they will be subject to FCA rules, meaning UK consumers will be protected.
The rules apply from 1 August 2019 for CFDs and 1 September 2019 for CFD-like options.