Contracts for Difference (CFD) providers have been warned by the FCA to provide fair value, after its review found some firms had not risen to the Consumer Duty.
Introduced in July 2023, the duty set a higher standard for consumer protection in financial services.
Some good practice was in evidence, including firms simplifying fee structures and stopping investors who might not be able to shoulder losses from buying CFDs in the first place. However, the FCA’s review found room for improvement, including where firms were:
- not adequately considering consumer complaints or customer satisfaction as part of their fair value assessments
- making little or no changes to their products or services in response to the Consumer Duty
- applying varying levels of overnight funding charges without providing clear justification – the potentially significant charges often were not adequately disclosed
- charging overnight funding separately on matched long and short positions, incurring potentially significant ongoing charges with little benefit for the consumer
Where necessary, the FCA will engage directly with firms included in this review to drive improvements. The regulator will also consider further work to address the issues identified. The FCA will act against any firms and individuals that fail to meet required standards.
Mark Francis, director of sell-side markets at the FCA, said:
'The Consumer Duty raises the bar for consumer protection across financial services and CFD providers must meet those standards. CFDs are complex, risky products and it is vital that providers act to deliver good outcomes for customers, communicate clearly and provide fair value. It is also important that consumers shop around and ensure they fully understand the investment and its costs.'
The FCA’s review of CFD providers assessed how a range of large and small firms delivered fair value, including how costs and charges were disclosed.
Background
- Read our multi-firm review of contracts for difference providers’ provision of price and value.
- CFDs are a way to bet on the price of a share or asset moving up or down without owning it. Under the Consumer Duty, CFD firms must ensure the price a consumer pays is reasonable compared to the overall benefits they can reasonably expect to receive.
- CFDs are complex financial products used to speculate on the movement in prices on a wide range of assets. As a result, they carry a considerable risk of substantial losses.
- In 2019, the FCA placed restrictions on the sale of CFDs to retail customers.
- In 2024, the FCA published good and poor practice insight considering price and fair value under the Consumer Duty.
- The FCA recently issued a warning to investors in CFDs against giving up vital consumer protections.
- In the coming weeks, the FCA will launch a consultation around client categorisation to ensure the right protections apply for the consumers who need them and create more freedom for those professional investors who don't.
- The FCA enables a fair and thriving financial services market for the good of consumers and the economy. Find out more about the FCA.
