The FCA has continued its warnings over contracts for difference products with a letter to firm chief executives outlining its concerns.
The regulator released the results of a review last month into CFDs – risky derivative products taking bets on markets like foreign exchange and commodities – expressing fears over how much clients were losing and that high commissions could be causing conflicts of interests.
Whether the portfolios or advice given to clients was suitable was “highly questionable”, it ruled, pledging further supervision of the sector and a consultation on new rules including on risk warnings and leverage limits.
In a letter to the chief executives of providers and distributors of CFD products, the FCA has reiterated that its review “uncovered areas of serious concern that we want to highlight to firms across the industry”.
The regulator asks CFD firm to assess whether they fall in line with FCA requirements in light of the findings, which showed 76 per cent of retail customers lost money from their CFD products over a year period, and due diligence and sound management information were lacking in many cases.
The FCA notes that after feedback, some firms have pulled out of the provision or distribution of CFDs to retail consumers. The regulator reveals in the letter it is taking action against one CFD provider, but has not named them.
The FCA says: “Firms need to improve a number of oversight and control arrangements to reach standards we would consider adequate, given the relevant rules and guidance mentioned throughout this letter. We are concerned that if firms do not address these poor practices, there is a greater risk that consumers will experience poor outcomes through the provision and distribution of CFDs.”