On 7 December 2018, the FCA published Consultation Paper 18/38: Restricting contract for difference products sold to retail clients and a discussion of other retail derivative products (CP18/38).
Earlier this year the European Securities and Markets Authority (ESMA) introduced a temporary product intervention measure which temporarily restricts how contracts for differences (CFDs) are sold to retail consumers because of the significant investor protection risks they pose.
In CP18/38 the FCA is proposing rules making ESMA’s temporary intervention measure permanent in the UK. However, the FCA’s proposals are wider in scope than ESMA’s intervention by including products with many of the same characteristics as CFDs, which the regulator calls CFD-like options. This is to stop firms getting around these measures by offering retail consumers CFDs in slightly different legal forms. The FCA is also proposing to apply 30:1 leverage limits to CFDs referencing certain government bonds, to better reflect their risk (compared to 5:1 under ESMA’s measures). The FCA also discusses in CP18/38 whether it should extend the proposed measures to other complex retail derivative products, including futures contracts.
The deadline to responses to CP18/38 is 7 February 2019. The FCA states that if these rules are not finalised by 29 March 2019, the regulator will likely adopt temporary, emergency product intervention measures to replicate ESMA’s temporary intervention to ensure consumer protection is not lost.
The FCA will consult separately in early 2019 on a potential ban on the sale of CFDs and other derivatives referencing cryptocurrencies to retail consumers.