Online Spread Betting Sector Affected By New Regulations

Published Saturday, January 07, 2017 -
Online Spread Betting Sector Affected By New Regulations

The UK’s Financial Conduct Authority (FCA) said that following an increase in the number of firms in the contract for difference (CFD) market, which includes spread bets and rolling spot foreign exchange, and it is concerned more retail customers are opening and trading CFD products they do not fully understand.

The proposed new regulations include standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts by all CFD providers to expose the risks and historical performance of these types of products, as well as setting lower leverage limits for novice clients who do not have at least 12 months or more experience of active trading in CFDs, with a maximum of 25:1.

Other possible rule changes are for leverage to be capped at a maximum level of 50:1 for all retail clients and lower leverage caps across different assets according to their particular risks, with providers to be prevented from using any form of trading or account opening bonuses or benefits to promote CFD products.

Christopher Woolard, executive director of strategy and competition for the FCA, said back in December, “We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved, and as a result can incur rapid, large and unexpected losses.” Adding, “We are introducing stricter rules for CFD products to ensure the sector addresses the shortcomings identified, and that firms make sure that retail clients are aware of the high risks involved in trading these complex products. The FCA also has concerns that binary bets pose investor protection risks and question whether binary bets meet a genuine investment need.”

In response to the proposed actions by the UK’s Financial Conduct Authority the online trading platform FxPro has cancelled an initial public offering (IPO). The spread betting sector has suffered some declining stock values because of the changes in the rules of engagement.



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