Britains financial overseer is taking a tough stance on CFD operators. The Financial Conduct Authority (FCA) is worried about risk alerts, thoroughness, and anti-money laundering procedures. This follows an investigation into Plus 500’s employment practices.
Playtech CEO Mor Weizer was taken aback by the FCA’s reaction to the company’s unsuccessful takeover of Plus 500. He mentioned that the FCA was not at ease with the agreement. The regulator’s unease has extended to the broader retail financial trading industry.
The FCA has sent an open letter to 100 CFD suppliers, notifying them that they will be closely observed. The regulator is intensifying its examination of financial product providers.
Although facing difficulties, Plus 500 successfully limited its pre-tax profit decrease to a level lower than anticipated, dropping by 7% to $132.9 million. Simultaneously, a 20% increase in the number of customers actually contributed to a rise in revenue to $275.6 million.
The organization stated that it was engaged in “constructive discussions” with the FCA and emphasized that it was not among the 10 companies included in the recent examination.
The examination uncovered “several areas of concern.” In a communication to industry leaders, Megan Butler, the FCA’s Executive Director of Supervision – Investment, Wholesale and Specialist, indicated that several of the 10 most prevalent methods for conducting suitability assessments did not align with FCA guidelines, that risk warnings provided to clients who failed these assessments were insufficient, and that there were also shortcomings in AML controls for managing the elevated risks associated with high-risk clients.
Most critically, the FCA discovered that the companies “might not have been acting in the best interests of their clients and have not treated them equitably.”
Contracts for difference are a widely favored financial product for individual investors, closely resembling spread betting.
Although FCA rules mandate that firms introducing clients to CFDs perform fitness checks to ascertain if clients grasp the inherent hazards of such highly leveraged instruments, concerns persist.
Varying regulatory frameworks
This communication highlights that numerous providers seemingly lack established procedures to evaluate the suitability of CFD trading for prospective clients, potentially leading to companies failing to recognize clients unsuitable for CFDs.
Anti-Money Laundering (AML) risk assessment protocols for ten providers were also subject to scrutiny. The FCA suggests these procedures did not encompass a sufficiently broad spectrum of factors when determining risk levels, “instead focusing on jurisdictional risk, limiting their effectiveness.”
Martin Pashley, Chief Commercial Officer of data screening provider W2 Global Data, stated that the FCA is emphasizing that AML processes are “more than just ticking boxes.” He remarked: “It’s no longer sufficient to merely conduct KYC or customer due diligence (CDD) when onboarding a new client.”
“Ongoing, continuous, permanent screening utilizing risk-related alert systems is imperative.” Similar to the gaming sector, CFD providers must adopt a “risk-based approach” to identify those potentially at elevated risk. The UK FCA is likely to intensify its focus on the industry in the forthcoming months.
Peter Heslington, the head of IG Group, shared his thoughts on the control of financial trading items in the Financial Times. He feels that if the UK’s Financial Conduct Authority (FCA) can’t effectively stop illegal operators, then a united effort by European regulators is necessary.
Heslington told the publication: “The FCA has taken action against dishonest operators, but it is unable to stop those who are authorized by other regulators and can operate in the UK.”
“While the FCA is a strong regulator for businesses licensed in the UK, other European businesses can still operate in the UK. The worry is that if one of these businesses fails, the whole industry could be harmed.”
The UK regulators might be all talk and no action, which could be good for the industry, especially since the binary options surge shows no signs of slowing down, although this could ultimately change if the UK votes to leave the EU in June.
