Spreadbetting crackdown: European intervention prompts delay by UK regulators

Oliver Gill
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The Financial Conduct Authority shocked UK spreadbetting firms when it announced proposed changes last December (Source: Getty)

British financial regulators have delayed an eagerly awaited decision on spreadbetting reforms after European authorities stepped in, revealing groundbreaking plans to crack down on the trading of riskier products.

The Financial Conduct Authority (FCA) has been considering responses to proposals it made last December to shackle certain elements of increasingly popular trading platforms.

A decision was expected in late summer. However, the FCA said today this will be delayed until after the European Securities and Markets Authority (Esma) completes its "product intervention... [into the] sale of contracts for differences (CfDs), binary options and other speculative products to retail investors".

The earliest date European authorities can implement its measures is 3 January 2018.

Read more: FCA snares backing of Saxo Bank after it splits from spreadbetting lobby

The precise details of what Esma will impose are yet to be finalised, but it is understood they will incorporate proposals made by regulators from other EU countries. Esma said: "These measures include leverage limits, guaranteed limits on client losses, and/or restrictions on the marketing and distribution of these products."

It is understood Esma also plans to prevent spreadbetting firms from chasing clients for repayment of negative balances: when trades go against customers and losses exceed cash held.

Although Esma has raised its own concerns about the retail trading of products such as CfDs in the past, this is the first confirmation it plans to intervene and implement new rules.

The FCA said it "will continue to engage with Esma to support the development of measures that promote a consistent level of investor protection across the EU".

Given the expected crossover between the Emsa and FCA plans, the UK regulator could drop its plans and implement those of Esma. There is, however, uncertainty as to the mechanics of this given this is the first time Esma has made an "intervention" in the trading of retail products.

Last December, the share prices of the UK's spreadbetting firms, such as IG Group, CMC Markets and Plus500, were sent into freefall after the FCA announced its own plans. These included capping the amount of leverage clients can take – in other words the amount of risk to which they expose themselves – and placing a ban on some inducements to new customers.

Trading platforms have lobbied the FCA on its proposals. Some industry watchers believe up to 90 per cent of spreadbetting firms could be wiped out as a result of the regulator plans. Larger firms, such as CMC Markets, believe the plans will not affect them due to the fact it only has "higher-value" clients.

Read more: CMC boss says a Jeremy Corbyn win would plunge markets into turmoil

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