Firms that deal in risky contracts for difference (CFDs) often aren’t providing fair value to their clients, a review from the U.K.’s Financial Conduct Authority (FCA) found.
On Thursday, the regulator warned CFD providers that they’re often not meeting the conduct standards set by its “consumer duty,” which was adopted in July 2023 to bolster investor protection.
Among other things, the review found firms imposing overnight funding charges on investors, failing to adequately disclose client charges, and imposing funding charges on investors with matched long and short positions, which resulted in investors paying “potentially significant ongoing charges with little benefit.”
It also found that firms failed to revise their product or service offerings to meet the regulator’s expectations under the new duty, and firms not properly dealing with customer complaints.
“The Consumer Duty raises the bar for consumer protection across financial services and CFD providers must meet those standards,” said Mark Francis, director of sell-side markets at the FCA, in a release.
“CFDs are complex, risky products and it is vital that providers act to deliver good outcomes for customers, communicate clearly and provide fair value. It is also important that consumers shop around and ensure they fully understand the investment and its costs,” Francis added.
The FCA said it will engage directly with the firms that were included in this review to drive improvement, and that it will take action against firms and individuals that aren’t meeting its required standards.
The regulator also said it will consider further policy work to address the issues uncovered in the review.