The U.K. financial regulator has issued a letter to the CEOs of regulated CFDs providers pointing out some concerns related to client on boarding and risk disclosures to clients. The Financial Conduct Authority (FCA) has been reviewing a number of procedures which CFDs brokers are using to onboard clients.
Looking at the way brokers are approaching customers to assess their appropriateness for CFDs trading and at the initial risk disclosures to clients of 10 brokerages prompted the watchdog to issue a letter which serves as guidance to the regulated firms.
The FCA highlighted in the letter that it identified a number of “areas of concern” and asks the companies to “consider whether your firm complies with FCA requirements for sales of CFDs products”.
While studying the policies of the brokerages, the FCA uncovered that a number of approaches which brokers use to assess whether their prospective clients are eligible to trade CFDs have been inadequate according to the regulations outlined in the regulatory framework of the UK watchdog.
The FCA’s findings also point out that a number of brokerages are failing to issue adequate risk warnings to their clients and fail to conduct appropriate anti-money laundering screenings. The issue has already been raised for Plus500 last year, yet apparently the regulator considers that it wasn’t the only company that needed to take action. A number of brokerages may be affected by the letter which FCA sent to brokerage CEOs today.
With brokers failing to warn their clients about the inherent risks which come with CFDs trading, the regulator watchdog in the UK may force actions against brokers which are not complying with the FCA’s regulatory framework.
The regulator cites “poorly worded risk warnings” and outlines that the policies of CFDs providers are raising concerns at the regulator. With companies almost universally accepting any client that applies for an account, the FCA is urging action on part of the brokerages.
“We ask you to consider whether your firm complies with FCA requirements for sales of CFD products and the points we raise in this letter regarding the process that your firm follows when taking on new clients,” concludes Megan Butler, the Executive Director of Supervision, Investments, Wholesale & Specialists Division at the FCA.