The FCA has issued a warning to providers of contracts for difference (CFDs) after its review found that some firms were not meeting its Consumer Duty requirements.

CFDs are a way to bet on the price of a share or asset moving up or down without owning it.

While the review found that some firms had made changes since the introduction of Consumer Duty in July 2023, it found that some firms were making little or no changes to their products or services in response to Consumer Duty.

The regulator also found providers were not adequately considering consumer complaints and were applying varying levels of overnight funding charges without providing clear justification.

The regulator restricted any sales of CFDs to retail customers from 2019.

Within the warning, the FCA said it will engage with the firms included in the review and will act against any firms and individuals failing to meet the required standards.

Mark Francis, director of sell-side markets at the FCA, said:  “The Consumer Duty raises the bar for consumer protection across financial services and CFD providers must meet those standards. CFDs are complex, risky products and it is vital that providers act to deliver good outcomes for customers, communicate clearly and provide fair value.”

The FCA also recently issued a warning to investors in CFDs against giving up consumer protections.

The regulator shared concerns that firms are using high pressure techniques to encourage investors in CFD products to claim they are professional clients.

Stating they are professional clients put investors at risk of losing more money than they can afford by giving up retail client protections, the regulator said.

According to the FCA, retail client protections, including leverage limits and client loss protections, prevent nearly 400,000 people a year from risking more than their original stake in CFDs and provide between £267m and £451m worth of protection.

The regulator has also found that investors are being targeted by 'finfluencers' (social media influencers) who may not make it clear that they are promoting unregulated firms operating offshore.

The regulator will soon launch a consultation on client categorisation to ensure the right protections apply for the consumers who need them and create more freedom for those professional investors who do not.

It said some of these finfluencers promise consumers unrealistic returns if they copy trades, invest in managed accounts or pay for daily trading tips. Over 90,000 people have lost around £75m over a 4-year period in this way at just one firm.

The FCA reminded firms that they must not push elective professional or redirection promotions onto retail clients and that it will take action against firms breaking the rules.

Under the Consumer Duty, customers should only receive communications they understand about products and services that meet their needs and offer fair value.