The FCA has raised concerns over the sale of contract for difference (CFD) products following a review of procedures at ten sample firms.
The review of smaller and larger firms that offer CFD products to clients on a non-advised basis assessed the client take-on procedures against the requirements of the Regulation’s COBS (Conduct of Business) and SYSC (Systems and Controls) rules.
In a ‘Dear CEO’ letter published February 2016, the regulator identifies “several areas of concern”. These include the inappropriate assessment of clients, inadequate risk warnings issued to clients who failed appropriate assessments and insufficient anti-laundering money controls.
The letter also suggests firms may not be acting in the best interests of their clients and treating them fairly, questioning their ability to meet regulatory requirements when making non-advised sales of CFDs.
FCA executive director of supervision Megan Butler says: “We are concerned that there is a high risk that that CFD providers industry-wide are not meeting the requirements of the rules when taking on new clients and/or are failing to do enough to prevent financial crime”.
Firms’ communications also failed to meet FCA expectations with evidence of “poorly worded risk warnings that did not set out the nature and risks of CFD products in a manner that was clear, fair and not misleading”.