FCA strikes to ban binary options and restrict the sale of CFD products

In the latest move by the Regulator to protect retail consumers from harm caused by some complex derivative products, permanent measures have been proposed today to ban the sale and marketing of binary options to retail customers and apply restrictions for CFDs.
 
Restrictions
Broadly, the restrictions proposed in the two Consultation Papers follow the European Securities and Markets Authority’s (ESMA) EU-wide temporary restrictions. However, the FCA wants these rules to go further and also be applied to similar products (including so-called turbo certificates). The Paper proposes that for any CFDs marketed or sold to retail clients, firms will be required to take comply with the following: 
 
Leverage limits – limit leverage to between 30:1 and 2:1 by collecting minimum margin as a percentage of the overall exposure that the CFD provides.

Margins – close out a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on their CFD account.

Total funds – provide protections that guarantee a client cannot lose more than the total funds in their CFD account.

Inducements – stop offering monetary and non-monetary inducements to encourage trading.

Risk warnings – provide a standardised risk warning, which requires firms to tell potential customers the percentage of their retail client accounts that make losses.
 
What next?
Both Consultation Papers seek feedback on the proposed measures by 7 February 2019. As such, Moore Stephens will be hosting a breakfast briefing to facilitate roundtable discussion in order to compile the industry’s thoughts, opinions and observations for submission to the FCA in response to the proposals.
 
If you would be interested in attending this session on the morning of 14 January, please register you interest here.
 
If you would like to discuss the impact of the proposals with a member of the team please contact us here.
 

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