The U.K.’s Financial Conduct Authority (FCA) is warning retail investors against skirting the regulator’s efforts to impose curbs on their use of contracts for difference (CFDs). Concerns by the FCA include the issue of firms pushing investors to claim that they are “professional” as a way to evade regulatory limits on the risky vehicles.
On Thursday, the regulator said it’s concerned that such firms are using “high-pressure” tactics to influence retail investors in that way, meaning the avoidance of added regulatory curbs that include leverage limits and asset-segregation requirements.
The FCA also warned investors about finfluencers touting unregulated, offshore investments.
“CFDs are complex, high-risk products,” Mark Francis, director of sell-side markets at the FCA, said in a release. “The protections given to retail investors under our rules save U.K. consumers millions each year. We are concerned that some firms are trying to get people to invest more than they can afford to lose.”
“Investors should be very wary of CFD firms attempting to bypass our rules in this way and of those on social media touting investments which look too good to be true,” Francis added.
The FCA also said it will take action against firms that breach the rules by pushing retail investors to give up protections by claiming professional investor status. The regulator will also, in its words, “target finfluencers touting financial services products illegally.”
Further, the regulator is planning a policy consultation in the coming months to ensure investors are categorized properly. This means retail investors are subject to adequate protections and that genuine professional investors don’t have their activities needlessly restricted.