FCA Hints at Widening Leverage Restrictions to Include CFD-Like Products
- The regulator warns that firms may try to skirt around the regulations by offering similar investment products.
The leverage restrictions on contracts for differences (CFDs) in the European Union (EU) has come into effect today. However, Britain’s Financial Conduct Authority (FCA) has already voiced concerns that further reforms are needed on products that are similar to CFDs but are not currently included in the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term.
In a statement today, the British watchdog has warned that banks may try to skirt around the regulations by still offering high Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term investment products to retail investors that have similar features to CFDs, such as Turbo Certificates. This is because the products are equally as complex and carry a high level of risk.
As a result, the FCA has suggested that financial firms, such as banks and brokers, might have to further reform their offerings to retail customers. This is because the regulator believes that these alternative investment products create the same type of risks for investors as CFDs.
The UK watchdog added that a recent Q&A from the European Securities and Markets Authority (ESMA) echoed these concerns. It highlighted that these alternative investment products could be sold under a variety of names, but they would be still very similar to CFDs. These similarities could result in significant losses for retail investors.
According to the statement, the British regulator said: “we are concerned that firms may consider getting around ESMA’s measures by selling other similarly complex products to retail clients.”
ESMA and the FCA will monitor the situation
In the Q&A from ESMA, it also identifies that for products that have these similar features to CFDs, firms: “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client.”
Due to the concerns, the FCA will work with ESMA and other regulators in Europe to assess the situation. In particular, regulators will be focused on how the alternative and speculative products are sold to retail traders.
The watchdog warns that if it finds any evidence to suggest that the products are causing significant losses for investors, it will work with ESMA and support and further action needed. This could include the implementation of further regulation.
The leverage restrictions on contracts for differences (CFDs) in the European Union (EU) has come into effect today. However, Britain’s Financial Conduct Authority (FCA) has already voiced concerns that further reforms are needed on products that are similar to CFDs but are not currently included in the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term.
In a statement today, the British watchdog has warned that banks may try to skirt around the regulations by still offering high Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term investment products to retail investors that have similar features to CFDs, such as Turbo Certificates. This is because the products are equally as complex and carry a high level of risk.
As a result, the FCA has suggested that financial firms, such as banks and brokers, might have to further reform their offerings to retail customers. This is because the regulator believes that these alternative investment products create the same type of risks for investors as CFDs.
The UK watchdog added that a recent Q&A from the European Securities and Markets Authority (ESMA) echoed these concerns. It highlighted that these alternative investment products could be sold under a variety of names, but they would be still very similar to CFDs. These similarities could result in significant losses for retail investors.
According to the statement, the British regulator said: “we are concerned that firms may consider getting around ESMA’s measures by selling other similarly complex products to retail clients.”
ESMA and the FCA will monitor the situation
In the Q&A from ESMA, it also identifies that for products that have these similar features to CFDs, firms: “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client.”
Due to the concerns, the FCA will work with ESMA and other regulators in Europe to assess the situation. In particular, regulators will be focused on how the alternative and speculative products are sold to retail traders.
The watchdog warns that if it finds any evidence to suggest that the products are causing significant losses for investors, it will work with ESMA and support and further action needed. This could include the implementation of further regulation.