The Financial Conduct Authority has warned firms offering investments in Contracts for Difference (CFDs) that it will take swift action in future to prevent consumer harm.
The regulator said in 2021 that it prevented an estimated £100m of harm to UK consumers from firms marketing CFDs.
The regulator is concerned that consumers are at risk from predatory marketing tactics from some rogue CFD providers.
CFDs are highly leveraged derivatives and adverse price movements in relevant markets can lead to substantial losses for consumers.
Around 80% of consumers lose money when investing in CFDs, according to the FCA.
The regulator said the CFD sector has attracted a number of firms, often accessing the UK from overseas, that do not deliver good consumer outcomes. In 2020 and 2021 the regulator stopped 24 firms marketing CFDs in the UK.
Sarah Pritchard, executive director of markets at the FCA, said the regulator has continued to take action into 2022.
She said: “We have set out the standards we expect CFD firms to demonstrate in order to protect consumers and ensure market integrity. CFD providers authorised in our regime must sell products appropriately, and when the new consumer duty comes into effect, will need to ensure that products deliver good outcomes for retail consumers.
“We will not hesitate to take swift and assertive action where we identify harm.”
Tactics the FCA has seen taken by those offering CFDs have included fake celebrity endorsements, the use of pressure-sales tactics to persuade people to invest increasing amounts of money and inducements being given to customers to upgrade to elective professional status despite clients not meeting the criteria and losing protection under FCA rules.
The FCA has also seen firms giving investment advice without authorisation.
