FCA: Firms failing to assess if CFD products suitable for clients
The FCA has criticised some firms for failing to assess if Contract For Difference products are suitable for clients.
In a letter to chief executives, the regulator has outlined various concerns after undertaking a study involving 10 firms in the sector.
The FCA found that many firms it observed gathered “insufficient detail regarding the types of service, transaction and designated investments with which the client is familiar”.
Megan Butler, executive director of supervision investment, wholesale & specialists division, has written to the sector to summarise the problems that were identified.
She said many did not assess whether CFDs were appropriate for the client.
Instead, they asked the client to self-certify that they understood the risks of the investment, she said, by, for example, ticking a box to confirm this.
Others failed to assess the client’s level of experience and knowledge, for example they did not assess the client’s education or identify their profession, or relevant former profession.
Ms Butler wrote: “We are also concerned that some firms in our sample did not have Anti Money Laundering systems and controls in place which were proportionate to the nature, scale and complexity of their activities.
“In particular, we found that although firms were conducting adequate customer due diligence on standard risk clients, predominantly through the use of electronic identification systems, many were not conducting enhanced due diligence on clients identified as high risk.”
She said there were wider implications.
She said: “Given the poor results that we observed across our sample, we are concerned that there is a high risk that CFD providers industry-wide are not meeting the requirements of the rules when taking on new clients and/or are failing to do enough to prevent financial crime.
“These findings also suggest that firms may not be acting in the best interests of their clients and treating them fairly, bringing into question firms’ compliance with COBS 2.1.1R and the Principles.
“All firms operating in this sector should ensure that they comply with the FCA’s requirements when making non-advised sales of CFDs.”