The financial watchdog has warned that companies offering contracts for difference (CFDs) may not be doing enough to vet their clients before taking them on.
The Financial Conduct Authority is concerned that financial companies are not doing enough to prevent financial crime or assess the suitability of their clients.
There’s concern that CFDs are being used to launder money and company controls are not “proportionate to the nature, scale and complexity of their activities”.
The FCA has written to all firms offering CFDs asking them to review their procedures, asking them to “act accordingly” if their policy doesn’t adhere to regulations.
The watchdog will then follow up with the companies to make sure they are meeting requirements.
CFDs are sold by spread betting firms and banks to investors who make a bet whether company shares or a commodity will change price. CFDs pay out if at the end of the contract, which can be as little as 30 seconds, the price has moved in the direction the investor bet it would.
The FCA’s executive director of supervision, Megan Butler, wrote:
We have identified several areas of concern which we wish to highlight to firms across the industry. In this letter we explain the issues we have identified and ask you to consider whether your firm complies with FCA requirements for sales of CFD products.
The FCA reviewed a sample of ten firms that offer CFD products.
Butler continued: “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.”