Binary options products - ‘up or down’ investment bets which falsely promise quick returns - would be banned. CFD “and similar” sales to retail investors would be heavily restricted.
The FCA says it has unveiled the proposed rules today to tackle the “harm” to retail investors it believes are being caused by these products.
The regulator has published two consultation papers which set out its plans, which would apply to firms acting “in or from” the UK.
The rules will:
• ban the sale, marketing and distribution of binary options to retail consumer
• restrict the sale, marketing and distribution of contracts for difference (CFDs) and similar products to retail customers
The FCA says it is acting to tackle widespread concerns about the “inherent risks” of these products, and the “poor conduct” of the firms selling them. It believes mis-selling in these areas has led to harm to consumers in the UK and internationally through “large and unexpected” trading losses.
The FCA’s proposed interventions are the same in substance as the European Securities and Markets Authority’s (ESMA) existing policy although the FCA is also proposing to apply its rules to closely substitutable products (including so-called ‘turbo certificates’).
The FCA estimates that the proposals for CFDs could reduce annual losses for retail consumers of UK firms by between £267.4m to £450.7m.
A permanent ban on binary options could save retail consumers up to £17m per year, and may reduce the risk of fraud by unauthorised entities claiming to offer these products.
Christopher Woolard, executive director of strategy & competition at the FCA, said: “We remain very concerned about the harm to retail consumers that’s being caused by the design and distribution of some complex derivative products.
“This is despite focused supervisory work over several years to try and improve firms’ conduct. Today’s proposals will enhance consumer protection by banning binary options and ensuring CFDs are only marketed and sold to consumers who understand the risks from trading these types of products.”
The FCA’s CFD consultation also seeks feedback on whether other complex derivative products, such as futures or similar over-the-counter (OTC) products, may pose similar risks.
The binary options Consultation Paper is open until 7 February. The CFD Consultation Paper is open until 7 February for feedback on the proposed measures and 7 March for feedback on the discussion of other complex derivative products.
The FCA will consult separately in early 2019 on a potential ban on the sale of derivative products referencing cryptocurrencies, including CFDs, to retail consumers.