FCA statement on selling high-risk speculative investments to retail clients
The Financial Conduct Authority (FCA), the conduct regulator for financial services firms and financial markets in the UK, has issued a statement on selling high-risk speculative investments to retail clients following ESMA’s action on CFD products.
In accordance the statement:
In June 2018, the European Securities and Markets Authority (ESMA) finalised temporary measures to restrict the sale, marketing and distribution of contracts for difference (CFDs) to retail clients. These measures apply across the EU from today.
FCA fully support ESMA’s measures, which are designed to protect retail investors.
In common with other regulators across Europe, FCA knows that other products can create the same kinds of risks to consumers as CFDs, particularly where they expose the investor to significant leverage. ESMA’s recent Q&A on its product intervention also highlighted these risks. These substitute products could be sold under a variety of labels but share common features with CFDs and these features may cause large trading losses to retail clients.
FCA is concerned that firms may consider getting around ESMA’s measures by selling other similarly complex products to retail clients. ESMA’s Q&A (link is external) makes clear that firms “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client” for products that have comparable features to CFDs, such as Turbo Certificates.
We will therefore work with ESMA and other European regulators to monitor and assess the sale of these alternative, speculative products to retail clients. If FCA has evidence that these products are causing similar harms, FCA will work with ESMA and will, if necessary, support further action to extend the scope of its intervention.
Firms must meet their obligations
ESMA’s intervention is focused on CFDs, but FCA reminds firms of their existing obligations. In particular, if a firm is considering marketing, selling or distributing alternative products, it should pay attention to conduct of business requirements. These include rules on the client’s best interests, communications with clients and financial promotions, and suitability and appropriateness. FCA also expect firms to consider carefully whether they can satisfy their relevant product governance obligations.