Contracts for Difference (CFD)
providers have been warned by the Financial Conduct Authority
(FCA) to provide fair value, after its review found some firms
had not risen to the Consumer Duty. Introduced in July 2023, the
duty set a higher standard for consumer protection in financial
services.
Some
good practice was in evidence, including firms simplifying fee
structures and stopping investors who might not be able to
shoulder losses from buying CFDs in the first place. However, the
FCA's review found room for improvement, including where firms
were:
-
Not adequately considering consumer
complaints or customer satisfaction as part of their fair value
assessments.
-
Making little or no changes to their
products or services in response to the Consumer
Duty.
-
Applying varying levels of overnight
funding charges without providing clear justification – the
potentially significant charges often were not adequately
disclosed.
-
Charging overnight funding
separately on matched long and short positions, incurring
potentially significant ongoing charges with little benefit for
the consumer.
Where necessary, the FCA will engage
directly with firms included in this review to drive
improvements. The regulator will also consider further work to
address the issues identified. The FCA will
act against any firms and individuals
that fail to meet required standards.
Mark Francis, director of
sell-side markets at the FCA,
said:
“The Consumer Duty raises the bar for
consumer protection across financial services and CFD providers
must meet those standards. CFDs are complex, risky products and
it is vital that providers act to deliver good outcomes for
customers, communicate clearly and provide fair value. It is also
important that consumers shop around and ensure they fully
understand the investment and its
costs.”
The FCA's review of CFD
providers assessed how a range
of large and small firms delivered fair value, including how
costs and charges were disclosed.
Notes to
editors:
-
Read our multi-firm review of
contracts for difference providers' provision of price and
value.
-
CFDs are a way to bet on the price
of a share or asset moving up or down without owning it. Under
the Consumer Duty, CFD firms must ensure the price a consumer
pays is reasonable compared to the overall benefits they can
reasonably expect to receive.
-
CFDs are complex financial products
used to speculate on the movement in prices on a wide range of
assets. As a result, they carry a considerable risk of
substantial losses.
-
In 2019, the
FCA placed restrictions on
the sale of CFDs to retail
customers.
-
In 2024, the FCA published
good and poor practice insight considering price and fair value under the
Consumer Duty.
-
The FCA recently issued a
warning to
investors in CFDs against giving up vital consumer
protections.
-
In the coming weeks, the FCA will
launch a consultation around client categorisation to ensure
the right protections apply for the consumers who need them and
create more freedom for those professional investors who
don't.
- The FCA enables a fair and thriving financial services market
for the good of consumers and the economy. Find out more about the
FCA.
