FCA raises concerns over contracts for difference

Money laundering2The UK’s Financial Conduct Authority has raised concerns over firms that offer contracts for difference (CFDs), asking whether they are doing enough to combat financial crimes like money laundering and whether the products are suitable for clients.

After the FCA reviewed a sample of ten firms that offer CFDs, it has sent a letter to all companies that offer the products and raised some concerns with them.

A CFD is an increasingly popular method of investing as it allows firms to engage in short selling which would be prohibited under another instrument. It also allows retail clients to take positions in currencies and other asset classes at a fraction of the cost as the underlying asset is never owned.

In an open letter to companies, Megan Butler, executive director of supervision at the FCA, said the review “identified several key areas of concern”, particularly over “the inability of some firms to assess appropriateness and to warn clients for whom CFDs are not appropriate”.

The FCA found from its sample of firms that many gathered insufficient detail regarding the types of service, transaction and designated investments with which the client is familiar.

Butler also said that she was concerned that firms did not have money laundering controls in place that “were appropriate to the nature, scale and complexity of their activities”.

The letter ends with a request for firms to review their CFD procedures to make sure they comply with all the FCA rules.

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