The UK’s financial watchdog has received one more response to its latest swipe against the sale of risky CFDs to retail investors, with Plus500 showing a similar reaction to its industry peers by claiming that it doesnt use third-party brokers to sell these products.
The FCA’s analysis of client accounts for 19 CFD firms found that 76 percent of clients had lost money on these products – and there is evidence that these losses tend to be higher when sold on an advised basis.
In letters sent to the CEOs of CFD providers, the FCA was concerned that firms, or their affiliate marketers, are not doing enough to advertise the risks of the product when signing up new customers.
In particular, several CFD brokers failed to record “a single instance of a conflict of interest affecting their business” and a number of others claimed “there were no potential conflicts of interest.” In one instance, the chief executive of a CFD firm was working as head of the compliance department.
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The FCA added it remains concerned that the risks to investor protection are not sufficiently controlled or reduced. It noted an increased risk of mis-selling the product since some firms put their staff under pressure to achieve sales targets “regardless of whether this delivers good outcomes for customers.”
Israeli-based but London-stock market listed CFD provider Plus500 noted that FCA’s “Dear CEO letter” did not contain any individual communication with the company. Plus500, which was once forced by the FCA to freeze all accounts and forbidden from signing up new clients, said that it does not and “has never offered its products via these routes.”
Asaf Elimelech, Chief Executive of Plus500, commented: “The guidance contained in the FCA’s letter today is not directly applicable to our business model. However, we take note of the FCA’s comments and guidance and we continue to ensure best practice compliance with the current regulatory regimes in all the jurisdictions in which operate.”
He added: “We continue to believe that these and other changes will enhance the CFD trading landscape and ultimately reduce the number of providers to a core of higher quality operators, of which we intend Plus500 to be amongst the leaders.”
IG Group, the UK’s largest spread-betting company, also revealed its take on the City’s concerns, saying that it has already terminated the company’s relationship with distributors that offer CFDS on a discretionary or advisory basis within the UK and European Union. The London-based firm said in a statement that the FCA review has “no new financial implications for its business.”