The Financial Conduct Authority (FCA) has published its annual Sector Views, this Tuesday, in which the regulator has provided an assessment of the risks and potential harm to consumers in the financial services markets.

Although the report covers a wide range of sectors, it’s the retail investment sector that is of particular interest, which covers the distribution of investment products, and retail products sold directly to consumers, such as contracts for difference (CFDs).

According to the regulator, sustained lower interest rates continue to drive investors away from safer asset classes into riskier assets, such as CFDs, mini-bonds, and even into the arms of fraudsters.

FCA: restrictions have saved consumers up to £451m p/a

In the report, the British watchdog highlights that before product intervention measures were implemented on CFDs, there were an estimated 800,000 active client accounts holding a total of £1.5bn in client money.

“We estimated that, overall, retail clients lost £1.07bn per year trading these products,” the regulator said in the report. “Following the introduction of leverage limits and other investor protection measures, total losses for retail clients of UK firms reduced by £77m between August and October 2018 alone. We estimate that our final rules will save retail consumers between £267m and £451m overall per year.” 

However, the FCA outlines that retail consumers are still at risk, as some CFD providers are encouraging their retail clients to opt up to ‘elective professional status,’ or use third-country firms to circumvent the leverage restrictions.

Crypto FOMO

For investments in crypto assets, according to the authority, ‘getting rich quick’ and ‘fear of missing out’ were the key incentives for consumers buying these products.

“Respondents also said they distrusted mainstream media and communications from institutions when considering these investments. They prefer to rely on friends, family and acquaintances, specialised online media and social media. Respondents were confident in their knowledge of the market and/or their ‘instincts’ when making decisions.”