Sign up for free newsletter

 

Firms must meet their obligations on sale of high-risk investments to retail clients


The FCA has released a statement on the selling high-risk speculative investments to retail clients following ESMA’s action on CFD products…

In June 2018, the European Securities and Markets Authority (ESMA) finalised temporary measures to restrict the sale, marketing and distribution of contracts for difference (CFDs) to retail clients. These measures apply across the EU from today.

We fully support ESMA’s measures, which are designed to protect retail investors.

In common with other regulators across Europe, we know that other products can create the same kinds of risks to consumers as CFDs, particularly where they expose the investor to significant leverage. ESMA’s recent Q&A on its product intervention also highlighted these risks. These substitute products could be sold under a variety of labels but share common features with CFDs and these features may cause large trading losses to retail clients.

We are concerned that firms may consider getting around ESMA’s measures by selling other similarly complex products to retail clients. ESMA’s Q&Amakes clear that firms “should pay particular attention to the leverage made available to retail clients and consider whether the product is offered on terms that act in the best interests of the client” for products that have comparable features to CFDs, such as Turbo Certificates.

We will therefore work with ESMA and other European regulators to monitor and assess the sale of these alternative, speculative products to retail clients. If we have evidence that these products are causing similar harms, we will work with ESMA and will, if necessary, support further action to extend the scope of its intervention.

ESMA’s intervention is focused on CFDs, but we remind firms of their existing obligations. In particular, if a firm is considering marketing, selling or distributing alternative products, it should pay attention to conduct of business requirements. These include rules on the client’s best interests, communications with clients and financial promotions, and suitability and appropriateness. We also expect firms to consider carefully whether they can satisfy their relevant product governance obligations.

specialreports
other gfm publications