Breaking: FCA Proposes Temporary CFDs Restrictions to Become Permanent

After two temporary 3 month bans, the UK regulator is paving the way to a permanent change to the market.

The UK Financial Conduct Authority (FCA) has issued a breaking news item for the retail trading industry Friday. About two years after the initial proposal to restrict CFDs trading on a temporary basis, the UK regulator is proposing to make the measure permanent.

While some companies might have been looking for mitigation to the regulatory framework, the FCA is making no changes to the original form of the regulations.

The UK FCA stated in its announcement that the goal of its move is increased consumer protection. The UK regulator is also proposing to make the ban of binary options permanent.

Poor Conduct and High Risks

Citing poor conduct by some market participants and worries about the risks consumers are facing the UK regulator estimates that the measures are expected to cut the annual losses of UK retail investors by between £267.4m to £450.7m.

Most notably, the FCA also includes into the framework turbo certificates, a set of complex derivatives products offered by banks to retail traders. The maximum leverage on all products remains between 30:1 and 2:1, depending on the asset class.

The UK regulator is outlining that it will be reviewing CFDs on cryptocurrencies in Q1 of 2019. Earlier this year, the FCA made clear that it intends to restrict the offering of digital currencies to cash trading.  

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Monetary Costs

In what is a first, the FCA estimated the impact on UK consumers from binary options. The product’s ban is expected to save retail consumers up to £17 million per year. Notably, the regulator also notes that the risks from unauthorized entities offering such products are only probable.

Commenting on the matter, the Executive Director of Strategy & Competition at the FCA, Christopher Woolard, said that the design and mode of distribution of “complex derivative products” are worrying for the regulator.

“This is despite focused supervisory work over several years to try and improve firms’ conduct,” Woolard said.

The FCA’s new CFD consultation is also asking for input on whether other derivatives, such as futures are suitable for the restrictions.

Firms have until February 7 to provide comments on the binary options ban and until March 7, 2019.

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