In an effort to protect retail traders UK’s Financial Conduct Authority (FCA) is going beyond the measures, currently adopted throughout Europe, planning a permanent ban on all binary options bets and restrictions on the sale and marketing of Contract for Difference (CFDs) derivatives, that allow investors to bet on the price of underling assets.
“We remain very concerned about the harm to retail consumers that’s being caused by the design and distribution of some complex derivative products”, said Christopher Woolard, Executive Director of Strategy & Competition at the FCA. “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 rules adopted by the the European Securities and Markets Authority (ESMA) in the summer and also followed by the FCA cape the maximum leverage allowed with forex transactions and CFDs and ban all binary options bets. The rules, however, are temporary and should be renewed every 3 months.
FCA will now make these policies permanent and will also propose restrictions on similar over the counter (OTC) products such as CFD like options, futures and the so called “turbo certificates” – a new type of indexed debt products. FCA states that it wants to stop brokers form circumventing the rules by offering traders high risk instruments in new legal forms.
The FCA estimates that the proposed CFD restrictions could reduce annual losses for retail consumers in the UK by between 267.4 million GBP and 450.7 million GBP, while a permanent ban on all binary options could save retail consumers up to 17 million GBP per year, reducing the risk of fraud by scammers.
In early 2019 FCA also envisages a potential ban on the sale of all crypto derivatives, including CFDs on crypto currencies to the public.