Today, the Financial Conduct Authority (FCA) suggested harsher sanctions to be imposed on companies that sell “contract for difference” (CFD) products to retail customers. The UK watchdog believes that such measures would be beneficial in terms of customers protection, especially considering the fact that sometimes retail customers do not properly understand CFD products.
The Executive Director of Strategy and Competition division at the FCA Christopher Wooland shared that the FCA had been concerned about the constantly increasing number of retail customers who did not understand CFD products adequately. He explained that was exactly the reason why the FCA offered tighter measures in terms of spread betting and added that the regulatory body had also been troubled with the fact that binary bets endangered investor protection, too.
According to the FCA, stricter rules imposed on firms that sell risky spread bets would make the situation better for customers, offering them fair and transparent conditions. Currently, spread betting is among the most popular types of wagering offered in the market. It allows players to bet on the outcome of certain event, while the pay-off depends on the accuracy of the wager, which makes it considerably different from parimutuel betting and fixed-odds betting.
The Financial Conduct Authority revealed that these measures were necessary as a total of 82% of customers lost money when using spread bets, so that the risks and negative effects of CFD products should be reduced. In addition, the watchdog provided a number of measures as part of its objective to decrease the CFD products-related risks for customers.
The proposed measures include the introduction of special standardised risk warnings. The national regulator also suggested that firms that offer CFD products should be obliged to disclose the ratios between profit and loss to their customers. Setting lower leverage limits of a maximum of 25:1 for retail customers who do not have at least 12 months of CFDs active trading experience. The FCA also offered another approach, associated with setting a maximum leverage level of 50:1 for all retail customers as well as setting lower leverage caps accordingly to the risks of every CFD product.
The Financial Conduct Authority was officially established on April 1st, 2013 and since then has been focused on providing fairness and transparency in terms of various activities in the UK gaming industry. Several weeks ago, it approved Betcade as an Authorised Payment Institution, expanding the range of mobile payment processing services allowing gaming operators’ customers to use a great variety of payment options in order to make payments on UK and European gambling websites.
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Daniel Williams
