Regulatory intervention: what next for the CFD industry?

The European Securities and Markets Authority (ESMA) issued an update at the end of June on its work in relation to the sale of CFDs, binary options and other speculative products to retail investors.

Both ESMA and national regulators (including the FCA) have raised concerns over the risks posed to retail investors from the provision of speculative products such as CFDs. It has been widely publicised that the regulators are considering intervention, including possible measures such as leverage limits, guaranteed limits on client losses or restrictions on the marketing and distribution of these products. 

All of these measures could potentially squeeze profits for CFD providers and, in the event of intervention by regulators, boards must be in a position to respond to the personal and business risks that a reduction in profits present.

The risk horizon

Given the possible impact of such regulatory intervention, senior management must confirm that their wind down plan is adequate, current and relevant to the firm’s operations to ensure that any scenario where either a shock to the business or an ongoing reduction in profits does not result in a disorderly wind down and, ultimately, an insolvency process. Boards should consider a review of the firm’s wind down plan by a restructuring specialist, such as a licensed insolvency practitioner, to ensure the plan is sufficiently robust. 

Timely and appropriate management information, an accurate picture of the firm’s liabilities (including contingent liabilities), a robust CASS Resolution Pack, an understanding of the key staff and other resources required to complete a wind down, plus an effective communications plan, will all help to mitigate the impact. In the event of financial stress or distress, those affected would include employees, creditors and other stakeholders.  

If regulators’ intervention is sufficient to result in an immediate or future exit from a business then the assistance of restructuring specialists can help plan and implement a wind down and closure of a firm. By doing so you, you manage risk more effectively, including reputational risk, while maximising returns to investors and minimising the costs of the process.

How we can help

Moore Stephens’ Restructuring and Insolvency team has significant experience of advising financial services clients, including CFD providers, on their wind down plans, and also providing advice and support to CFD providers when planning and implementing a wind down of operations. 

For more information, please contact us.
 

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